Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Investment manager at CLSA Capital Partners (HK) Ltd? Look like a private equity fund manager to me. Well, IMHO, OEP probably gave some "suggestions" about the new CFO position as well as the new board. That's nice. This management certainly need some fresh air.
OEP: Don't forget to find out what's really going on in rADTZ.
ratobranco, did you get the reply email? personally I don't think whether the contract is enforceable or not is important. JPM/OEP is a major owner/partner and it will be foolish to trick JPM into an unenforceable contract. So I believe it is enforceable. The question is how much penalty/compensation we have to give to them if management fail to achieve the financial target. With the major delay in radtz it has become the more and more likely outcome.
Another question to speculate is : Does JPM/OEP know the delay when they negociate with management since the events are so close together? Do they have a full handle of the situation? Frankly I will be upset if I just enter a partnership and boom my partner give me a surprise by announcing a major delay of an very important product.
Without radtz contribution and 6 -8 mil from LifeTech in 2010 I wonder if they can meet 25mil EBITDA target for 2010. It is harder to squeeze more profit out of their distribution business.
When they talked with OEP about the stock subs. agreement they probably still saw they could get some good high margin profit from radtz in 2010 also I believe their forcast for LifeTech is higher(10-12 mil). It is April now so I think they know q1 and a bit about q2 business. I think probably it is wise to not expect much when the 1st q report comes out.
I listened to CC too. From Nov 16 2009 CHME 3rd q earning release:
"China Medicine expects the acquisition to be accretive to earnings generating revenues of between $10.0 million and $12.0 million and net profit margin of at least 40% in 2010"
You see what the problem is? They now reduced the expectation from 10 - 12 mil and net margin at least 40% to 6 -8 mil and gross margin 40%. I hope they mean net margin because 40% GM is low for a self brand drug. I heard they mentioned "limited production" also but have no idea what it means.
Also, the end of the year radtz approval is their guess. They have no idea how long does it take only hope it won't be too long.
Now, about the "reformatting the data". My fear is that MOA is not satisfied with their trial run data and want more evidence even though they think they have enough.
From top to bottom, this is a disappointing report and CC.
It depends on how you interpret its "penalty" formula in SEC filing. ratobranco tried to calculate it a while ago but I think the dilution could range from not much to substantial. If anyone could clarify this I would like to know the answer also because it increasingly looks like it may not meet the EBITDA target due to no revenue but expense from radtz and not much or no growth from its other businesses in 2010.
If you talk about the maximum penalty( worst case) scenario. i.e. OEP increases its ownership up to 75% for free then the dilution could be very substaintial. But it is the worst case. Let's hope if they miss it then they miss it not much.
ckuratz, if you have better opportunities elsewhere there is nothing wrong to allocate money to other opportunities. After all it is your money. Especially if you got in early and had a nice profit. Who knows? May be you are right about it. Good luck to you too.
Your post read like a journal to yourself. It is good that we write down what we think so later on we could re-read it to keep things in perspective:
Here is my take and I want to keep it simple:
(1) JPM is in it to make big money only.
(2) JPM is in it for a Chinese phama play with a rocket launcher on hand, sure the rockets may misfire so they
(3) get in ON THE CHEAP and want to control it so they could have a chance to right it if things falter.
When I make the investment I was in for radtz only. I wan't high on their distributor business. Since then they have changed the makeup considerably. I was pissed off by the massive dilution at first but knowing that they have a strong partner along with Mr. Yang give CHME more fighting chance to succeed in the future. Despite our hope, most small businesses stumble along the way. That's the rule of life.
If you get in early you are unlikely to lose since JPM defense line is on $3. But if you get in just now. I don't know. That's why besides doing your dd the average buying price is so important. What's more, if someone gets in 3 months earlier and wants to take 100% profit there is absolutely nothing wrong with that. You won't find many cases like that(double in 3 months) except ads or bbs on internet otherwise we will all be filthy rich. Having being in this business for 2 decades and paid lots of tuitions I could tell you knowledge and technique is only 10% of the game at best(do dd, get in cheap), mentality and luck split the rest. We could talk about winning and scoring short term. But long term it is a survival game. If you survive you succeed.
Just my 2cs.
abh3vt, here is how I come up with 42 mil:
15.4 (diluted shares by the end of 3rd q.)
3.2 (warrent redemption, see S1 on Dec 2, I assume all converted)
4 (OEP 1st stage financing)
19.2 (OEP 2nd stage financing)
total 41.8 mil shares
feel free to correct if it is wrong
With many variables up in the air it becomes increasingly difficult to make eps prediction. It will be from fair to undervalued, depending on how big your dream is. There are performance benchmark is the deal: 25mil EDITA for 2010 and 39mil for 2011. I think that's the est. we should stick with for now. In the near-term, 4th result from distributor business could a little soft and we will probably get the licence late in the 1st q.
I think JP/OEP effecitively takes control of the destiny for CHME. Mr. Yang becomes the manager for hire to run the company. The whole current management becomes the minority owners of CHME.
Here is what I would like to JP to do short term by getting 23 mil shares on the cheap:(my dreams)
(1) find a competent CFO for Mr. Yang. It is long overdue.
(2) strengthen their auditing board, get a good accounting firm and prepare them to be listed on the big board.
(3) monitor their acquisition plans. Make sure they don't waste your money on some fancy investments like real estate deals which is red hot but could become a bubble later on.
(4) get them more exposure to the outside world.
I don't think it will be shoot for the moon kind of stock appreciation any more. It will be a slow climb at best if anything works out. If we count all future dilution we are talking about 4 x 42 mil or 168mil market cap company now. Don't forget the massive dilution overhang and radtz challenges. If some folks want a quick high they may have to look elsewhere. You have to make the bet for long term.
I guess now we know their next acquisition target: Guangdong Jiangmen Center for Biotech Development Co., Ltd.
see their filing today. Can't find info. for this company yet.
Anyone know it?
I could only guess here. I think they work with OEP to come up with 25 mil figure and they say that includes the acquisitions. But on what basis? I can not go to the bank and borrow money if I don't have a acquisition plan in sight.
All the businesses I know do not put future unknown acquisitions into calculations and tell the public if they do not see that on the horizon.
It is interesting that they put out 25mil EBITDA target in 2010 with future acquisitions otherwise they will lower EBITDA.
It is like to say I will be $100 richer if I earn $100 more today otherwise I will be the same as before. Why do they issue such a redundent statement?
This leads me to wonder if they have some acquistions in sight so they could do the estimate when they do the deal? Why said 25mil not 30mil or 15mil? We are talking about 2010 which is now.
2morrowsgains, you're right. My bad. Too much jobs to do this morning to give a clear thought and confused by the PR. Good or bad it is essentially like the previous deal. It is like we offer a little more than half of the company at $3 a share and they can subscribe it at any time. Is it the deal and do you like that?
No. I will tell you why. OEP won't get 19.2 mil sh. until CHME reaches $30. At least that's my interpretation. I will gladly give OEP that if they could help them reaches $30.
Actually I think it is a better deal than the previous announced prelim deal.
I hope so. But to be really honest, I will bet we won't get the news until late 1st q. The process takes time and Chinese New Year long off days complicate the matter. Since I didn't get any impression they need to resubmit in Mid Nov CC. and they still anticipated end of year approval at that time. I guess they might get the news late in the 4th quarter. This stock has become quite unattractive short term while other Chinese small stocks are passing by.
It looks like short term traders who anticipated near term radtz approval are selling and moving money elsewhere. The recent run up at least in part due to radtz near term approval. df2830 posted this
on yahoo board that he received an email from CHME IR:
Email from IR
"I spoke to the Company and the rADTZ product has not been approved yet. The Company has to resubmit a document requested by Ministry of Agriculture and is anticipating the approval first quarter 2010.
Best Regards,
Mellissa Kong
CCG Investor Relations
Tel: 8621 - 5175 7782
Fax: 8621 - 5175 7754
Cell: 86-1362-172-0068
Email: mellissa.kong@ccgir.com
Web: www.ccgir.com
This put a near term cloud on CHME in addition to previous CFO very short stay on the job. One way or the other we will know by March earning report time. It is important to note that they still anticipate 1st q approval. They will have to explain it in PR and callers will nail in down in cc if they don't get the approval by then. This is the focus and there is no way to escape it.
I am more like a 'long term fundamental' kind of guy so I don't pay attention to these noises. But since I have time now and just for fun I will try to speculate: The spike in the open look like a MM trap. We have up days and looks like a down day today. If someone had profit and they want to realize it in 2010 they may wait to sell it today. Of course if CHME were up today it would not be hard to come up with another theory to explain it.
Still waiting for the licencing news
thanks runncoach and also 2morrowsgains for radtz info. Looks like there are alternatives to treat AFT feed contamination but radtz is superior. I also think probably Chinese market is their focus for the forseeable future.
Someone actually asked Mr. Yang to clarify this in cc. But IMHO his reply was "murky" at best. He basically felt that the cash need for lifetech purchase may affect the working capital for 4th q operation. But he did say the effect would not be big. Also keep in mind they had an unusually good 4th q last year due to multiple factors. That makes this year's comparison difficult for their traditional distributor business. It may be his way to warn that the headline may not be as nice as last q earning PR. I believe lifetech will be included in the 4th q earning report and 10K. We won't know about that until possibly late Mar. Furthermore,I hope the recent CFO departure has nothing to do with the financial reportings.
runncoach, do you personally know the details of the competitive landscape of their radtz product? Are there similar products to treat corn feed available now in China? How about here in the states? Anyone else who know this feel free to share with us. Thanks in advance!
Actually, substantially rev. from radtz won't be realized until 2011. 1200 tons is the annual run rate by the end of 2010. Not 2010 shipment.
However, radtz is now just one of the drivers for chme. A very important one. But not the only one. By acquiring life tech and possible future acquistions they have transformed CHME from a low margin medical distributor to a high margin phama company. radtz is a very juicy and potentially overwhelming component on top of them.
Don't forget as the price goes higher it is more and more likely they will try to seek uplisting as well. That may drive the price higher still.
Just my 2cents.
You are right. I overlooked that one sentence. Thank you!
It is only preliminary so I hope we could get a better deal when it is finalized. Too many shares fixed on 2.5 or 2.6 (including warrants). Look like CHME has established a beachhead over 3 after an initial assault yesterday.
In reply to a question about uplisting back in 2nd q cc Mr.Yang said they need to reach $4 first and he hope to achieve that by the end of the year. The stock is marching toward that.
Please show me the sec report that they could walk out of 3rd stage financing. Thanks!
If all warrants are excercised they will get 7.5 mil max. I don't know if it is enough for the first downpayment of the acuqisition so they don't have to do such a monstrous multi-stage deals with that private equity company. Today's strange trading may have something to do with this? Someone posted before hope they could just do the first stage and second stage only. IMHO, I don't think it is that flexible. Obviously that private equity company want eventual control of the company. It is probably either take the whole package or walk away.
Hi Everyone. I just to add my 2 cents here. CHME only owns 70% of radtz join venture. It is in their 10K somewhere. I assume they could only claim 70% of radtz's future profit. Also all people discuss here is gross profit not net profit so you can't derive a pe ratio here and estimate their future stock price potential. IMHO The real bottom line is the total future cash they generate from operation divided by their total future shares count. It will undergo dramatic transformation next year if things go well.