China Medical: Why the Rapid Growth?

China Medical (CMED) came out with Q1 results and essentially popped its revenues by 50%. This is a young company selling medical devices to Chinese hospitals and the market seems to be very good. I normally am not impressed with sell side analysts, but in the conference call transcripts the analysts did not seem to be swallowing the reasons for margin increases.

A major factor is that China Medical no longer sells microscopes and refers the hospital to the manufacturer. Management claims this is easier and removes a lower margin product from the product sales cycle. Why not just take a referral fee and fax in an order? What is it that is much slower under the old process? The rationale does not clearly wash out in the discussion.

The company is in a rapid growth mode. But if the products and services are so hot and in demand why are customers not paying their bills more quickly? Accounts receivable are well over 100 days. There has been some improvement but you cannot survive with accounts receivable 100 days old. At the present time accounts receivable is well in excess of the quarter's revenues. Cash is king. The king's throne does not appear to be situated on this balance sheet.

Comments

[fxtrader07:]

you seem to be absolutely obsessed with finding something negative everywhere you look.
Must feel like a truly gratifying life.
but then again, you have chosen so.

2008 Aug 06 05:33 AM

[donzoab:]

If you look you will see that DSO's dropped qtr over qtr and continue to improve. The switch to reagent sales will help improve this further. Plenty of cash on hand to fund operations and with these margins, bigger returns are coming.

2008 Aug 06 08:52 AM

[jorida:]

Are you suggesting that the company is channel stuffing to improve quarterly results. Did you did a comparison quarter per quarter? I would much appreciate your comments.

2008 Aug 06 05:06 PM

[Dr. Medicine:]

Not only is your analysis and presentation incredibly shallow, but you seem to be poorly motivated as well. One wonders about your real motivation.

Anyone who has to quote Asensio to make what he believes to be a positive point in any article has no credibility with the intelligent public.

2008 Aug 07 08:02 AM

[DAD08:]

I am neither long or short this stock- however it is good to have different perspectives to consider either prior to initating a postion or making a decision to take profits or add more.
Thanks for the post.

2008 Aug 07 09:29 AM