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  • More ideas regarding China Sky One Medical Inc. (CSKI) 1 comment
    Feb 23, 2010 2:17 AM | about stocks: CSKI
    China Sky One Medical Inc. (OTCPK:CSKI) has $3.379 per share in cash (23% cash/price ratio) without any debt. Attractive $2.19 EPS (ttm) at 25.30% quarterly earning growth. Its history of EPS draws a perfect path of a growth stock since Mar 2007 starting from $0.125, $0.337, $0.436, $0.295, $0.26, $0.603, $0.419, $0.435, $0.569, all the way to latest $0.744.

    Here are a few things I want to share with you.
    1. I think today's sell-off could be caused by the article "CSKI Products on Government List of "Counterfeit Drug Products," Pharmacies Ordered to Stop Selling.". It is a good article with deep analysis of many issues in the company. However before we get crazy by those bad news, we'd better recognize that "the Company manufactures and distributes around 90 pharmaceutical products, including traditional Chinese medicines, western medicines, diagnostic kits and cosmetics.". Besides its products were well diversified, the 8 questioned products are less than 10% of all products of the company, and may contribute far less than 10% of its revenue (Note: I did not check the number regarding the revenue contribution).
    2. The author of the above article was a short seller, as you may know a short seller usually looked more on the dark side and ignore the bright side. For example the latest positive news from the company such as China Sky Medical, Inc. Has 30 Medicines that will Be Included in China's National Insurance Directory
      and China Sky One Wins National Innovation Award for Diagnostic Kit. I hope you don't need me to explain what this means to a company like China Sky One in such a market in China, it is simply bullish.
    3. I believe the issues mentioned in the article truly exist in certain level. But the author need to put those issues in to the special market there. The over promotions and bad services are common issues in the immature market for immature customers in the immature industry in China. Rules are on their way to be learned, built and polished there. I believe the customers will eventually wake up and protect their rights, however I also believe the company will grow to be more mature and the management team to be more professional.
    4. Even if all issues will affect 10% - 20% of the profit or revenue of the company, it will not drag down the performance of the company very much by assuming it still keeps 20%-25% earning growth from other drugs and other products, and benefit from the forecasted 2.5% to 5% of gains from currency (Yuan Gains Most in One Year on Signs Flexibility to Increase).
    5. We have to admit there are issues and problems in the company. But they do have real R&D, produce read drugs and operate real business. We saw scandals from hired professional executives in other companies, because they don't have ownership and loyalty of the company. However for a highly insider owned company, I don't think insiders (at the same time executives) want to see their wealth simply gone because of stupid mistakes. Base on the data we have from the company, the price today is very attractive IF the data is right without scandals. I believe the issues and bad news have been there for a while and have been fully reflected into the price that has been down from $24 to $15. We are here for more bad news or new issues. If there's no more, then here is the bottom. If we see more unacceptable issues coming and pushing the price down below $13, we'd better have a stop loss. So high risk high return, sometimes we have to believe the management team can fix all the issues and lead the company to the right path. Honestly, many of those issues may not be recognized as issues in the market there in China. We can't  measure a company in China by simply using the rules in North America, even though all the rules we are using are truly right and proved by history.


    Disclosure: Long CSKI at $14.83, stop loss below $13
    Stocks: CSKI
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  • balabanovj
    , contributor
    Comments (52) | Send Message
     
    Bear in mind that once re-labeled and the accuracy of the claims adjusted, these products can then be sold again. There is no mention of counterfeiting, simply medicinal claims that are out of line with what the products actually do. In the long term, this is a good thing to be happening in China, especially as Western medicines supplant TCM's.

     

    JBB, M.D.
    23 Feb 2010, 04:01 AM Reply Like
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