China Med Reports Strong F1Q08 on Diagnostic Products Growth

China Medical Technologies (CMED) reported higher financial results from its first quarter of 2008, which ended on March 31, 2008. Revenues climbed 50% to 227 million RMB ($33.1 million) and non-GAAP net income rose 61% to 111 million RMB ($16.1 million). Earnings per fully diluted ADS were up 49% at 57 cents.

Stock compensation expenses took a bite out of non-GAAP net income, dropping it by 7.7 million RMB ($1.1 million) to 103.3 million RMB or $15 million for GAAP-compliant net income.

China Medical derives its income from three main product lines: its HIFU (High-Intensity Focused Ultrasound) medical devices, which are used to treat tumors, and two diagnostic products: ECLIA and FISH.

The HIFU devices once provided the majority of China Medical’s income, but their steady sales are being overshadowed by the rapid growth of the diagnostic products. HIFU tumor therapy system revenues were 65 million RMB ($9.4 million) in the first quarter, an increase of 12%. ECLIA products jumped 41% to 112 million RMB, which is more than half of the company’s total sales. The newest member of China Medical’s product mix, the FISH system, added the final 50 million RMB ($7.3 million). In the year earlier quarter, FISH revenues were only 14 million RMB ($1.4 million) because the system was just being launched as a China Medical product.

As the product mix for China Medical switches increasingly toward the reagents for its diagnostic products, the gross margins for the company improved to 69% from a lower-than-usual 58% in the 2007 first quarter. China Med is very pleased that an increasing amount of its sales come from recurring products, the reagents, rather than the HIFU systems.

The results for Q1 include a provision for 18% in taxes, the transitional amount under the new tax law. China Medical expects to qualify as a high tech industry for the 15% rate, but it will continue to book its taxes at the appropriate transitional percentage until it is awarded high tech enterprise status.

China Medical reiterated its guidance that full-year revenue would be approximately 1.2 billion RMB or $175 million. It is expects non-GAAP net income to come in at 600 million RMB or $87 million.

At the end of the first quarter, China Medical reported a hefty cash balance of 781 million RMB ($113.9 million). Its accounts receivable rose 4% to 302 million RMB ($44.0 million) from the previous quarter. However, the accounts receivable turnover decreased to 110 days from 114 days in previous quarter.

Disclosure: None.