So far CHME, CPHI and AOB have reported.
CHME and CPHI reported pretty good "reported results". However, the issue of huge AR, notes receivables, inventories and advances to suppliers remains. It seems that Chinese pharma distribution companies act almost like a free credit line for hospitals and even their suppliers. Their own cash disappears while their customers get almost a year of free credit. It is Chinese specific custom and probably they will collect the AR, since they deal with state hospitals that ultimately do pay. But in the meantime any sales growth means even more negative cash flow, since the ARs collected lag by a year and are smaller than new ARs created. This leads to dilution or borrowing.
IMHO, these companies still have potential, but I would not put a lot of money into them. It's always possible that they would go up in speculative spike, but I would not count on it.
AOB is a bit different. It is much bigger company, so a larger part of its equity is not in the AR, inventories, etc. However, a large part of it is goodwill/intangibles. And the AR/inventory issues are there too, they are just less apparent. AOBs valuation is less attractive than CHME or CPHI using any measure. The only positive could be its size, which may lead it to attractive opportunities not available for smaller competitors.
I currently hold all three companies mentioned and also LTUS. However, IMHO, none of them are clear buys at this time. If CHME falls below book again, it might be an attractive investment. |
