Tuesday, August 05, 2008

China Medical Sounds Good?

China Medical (CMED) came out with Q1 results and essentially popped their 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 carried by seekingalpha.com the analysts did not seem to be swallowing the reasons for margin increases. A major factor is that China Mediacl 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 the age to 100 days. At the present time accounts receivable well in excess of the quarters revenues. Cash is king. The kings throne does not appear to be situated on this balance sheet.