balabanovj

China Medical Technologies Still Stumbling

I don't really buy the anonymous letter excuse. If there weren't price and margin errosion, customers would not have abandoned CMED. The fact that their attention was diverted, perhaps kept them from responding earlier to change their price structure. The company knew this right from the start and persisted with the anonymous letter reasoning. In reality, they told a lie of omission, which is very common in reporting from Chinese companies. Most Western companies would just come right out and say that "our margins have erroded due to the price war going on with products x, y and z. Here we have dishonesty and lack of transparency. Additionally, at least for me, the sale of the HIFU business stank! Even if everything was on the up and up, knowing that Chinese companies are notorious for related party transactions, they should not have done the deal. That was my signal in fact to stay away from the stock and I'm very glad I did. I believe they were also duped into paying much more than they probably had to for the HPV platform. All this said, they do have some very sound revenue generating products, but as with any lucrative business, the competition has stepped in and made it a bit less profitable for them. If it were not for their Chinese brand of "honesty" and lack of transparency in this regard, I might be tempted to open a position at these levels. Unfortunately, management hasn't shown me that they can be trusted with my money.

James B. Balaban, M.D.