L Brands (LB) is a diversified specialty retailer that operates a variety of brands, including Victo...
The Best of Both Worlds?
06/27/2007 12:00 am EST
I've been recommending China Medical Technologies (NASDAQ: CMED) for some time, but only as a growth story. It did not pay a dividend—until now. And the dividend is substantial, 40 cents a share to be paid on August 17 to shareholders of record on July 18. If the company paid this amount each quarter, the dividend yield [would be] 5%, one of the highest among Chinese companies.
China Medical offers a unique product in a booming area, non-invasive medical devices. China Medical also offers the High Intensity Focused Ultrasound (HIFU) therapy system, an ultrasound-guided ablation technique that is used for the noninvasive treatment of liver, breast, and kidney tumors, solid tumors in the pelvic cavity or on bone, and tumors in the four limbs or superficial tissues. The HIFU system has been wildly successful in China, and is now expanding into Europe and Russia.
In addition, China Medical announced a monster quarter this week. The company reported that net income jumped by 21% year over year on a 46% increase in net revenue of $21 million. Imagine a company that earns $10 million on $20 million in revenues—a 50% profit margin!
The company attributed the sharp rise in earnings and revenues to the growing popularity of its tumor therapy systems and medical devices. Increased marketing efforts by top officials have contributed to the company's torrid growth pace. Senior management is touring hospitals to introduce the noninvasive systems with great success.
Furthermore, the company appears to continue growing rapidly, with management expecting revenue to rise by 50% to 60% in the next year and adjusted net income by about 30%. China Medical is really taking off with rising earnings growth projected to occur in 2008, 2009 and 2010, amid further acceptance of the HIFU technology worldwide. Acceptance of that technology will drive international revenues, starting in Korea, Europe, Japan, and the United States.
China Medical also recently purchased Fluorescent in Situ Hybridization (FISH) technology, which involves a DNA probe with fluorescent dye so that it can be seen with a microscope. Profit margins on FISH technology are roughly 80%.
Let's buy China Medical Technologies (CMED) at today's price and set a protective stop of $26 a share. (The ADRs closed just shy of $32 Tuesday—Editor.) For those willing to take a gamble, consider buying the January 2008 $45 calls, symbol YPZ-AI.
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