Joining the party in CHME.OB

[David Randolph]

This is one party I wish I never joined lol.  Considering David's concern about management honestly, and now the technical breakdown of the descending triangle, I had to leave the party.  Hopefully it gets better for those still holding, maybe I got out at the bottom 

Hi Tokyo, it's a pity you left at such a low point (well, $3 also seemed like a low point, so ). My concern about CHME's management honesty derives exclusively from this being a Chinese micro-cap and nothing else.

Me too Tokyo....I'm out.  I caved on UTVG as well.  I knew when I bought these they were risky OTCs so I was prepared to take a loss.  Not again...

Yes JKN, these were horrible trades and I'm sorry. I will also never buy an OTCBB stock again, not even for short term trading purposes.

The bummer is losing money on the biggest up day I have ever seen in the market   

Yes, quite sad. The Main was up 3.2%, but there was a panic selling in CHME.OB.

Yea, when I sold the market was retreating from its early day highs and I thought the party was over then, oh well, I let this one go past a 30% stop and was paying for it.  The past year has not been good for me, I have been killed by not taking partial profits on runups and not honoring a tight stop.  I hope I'm proved wrong for those still holding, but I think it will be a long and bumpy long ride to profits and my a$$ is already sore.  I've got to do a better job at protecting  my capital.

There would be a lot to write about this JKN ... I guess investing for the long term was a bad idea after all. Or it wasn't well done. I've been studying more about Buffet's methods (reading his annual letters to shareholders seems to be better than reading books about them) and I guess my flaw was that I invested for the long term in young companies, which are too risky, regardless of the fundamentals.

I'm preparing an article on these issues.

But worry not JKN, the lessons you've been learning are valuable. Good luck for you and we'll keep talking.

On CHME.OB, it was quite a panic yesterday. The stock is trading without any regard for the fundamentals, I mean, this stock is trading at just 5 times 2007 EPS. Will it trade at 2 or 3 times earnings? Well, I guess anything is possible ... AOB also traded at 3-4 times earnings in the past and later had a 20 times plus earnings multiple. It's impressive how the valuation contracts and stretches, probably making it the most important factor driving stocks over the short term (say 12 to 18 months).

So, for a stock's trader, it is more important to know if the multiples will expand/contract than to know how a specific company's earnings will change. This adds some new dimensions to investing in stocks (especially with small caps) like investor's sentiment and macroeconomics.

I've seen many declines in OTCBB stocks end with days like the one we've had yesterday, so maybe CHME's decline is near the end. I currently have 3.1% of capital into this micro-cap and since I'll never buy another OTCBB stock, I'll just keep holding it for some more time.

[David Randolph]

I was going to write "panic selling" on the chart below, but in respect to the people here who sold on that day, I wrote "no more hope selling".

I wonder if that was the low point for CHME.OB and the stock may trend higher from here ... the sector is a good one and the p/e of 5 is as low as it can get (well, it can always get cheaper, I've been learning this the hard way).

We'll see what the future holds for CHME.OB, I'll keep holding.

[soxguy]

Press Release   Source: China Medicine Corporation

China Medicine Announces Conference Call to Discuss Fourth Quarter and Fiscal Year 2007 Results
Tuesday March 25, 3:20 pm ET

GUANGZHOU, China, March 25 /Xinhua-PRNewswire/ -- China Medicine Corporation (OTC Bulletin Board: CHME - News; "China Medicine" or "the Company"), a leading developer and distributor of prescription and over the counter pharmaceuticals, traditional Chinese medicines (TCM), nutritional and dietary supplements, medical devices, and medical formulations today announced that it will conduct a conference call at 9:00 a.m. Eastern Time on Thursday, March 27, 2008 to discuss the fourth quarter and fiscal year 2007 results.

ADVERTISEMENT
Joining Mr. Shensan Yang, Chairman and Chief Executive Officer of China Medicine, will be Ms. Huizhen Yu, Chief Financial Officer. The Company plans to make an earnings announcement prior to the call.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 888- 419-5570. International callers should dial 617-896-9871, Conference Passcode: 25022850.                                                                                                                           

[soxguy]

   Source: China Medicine Corporation

China Medicine Announces Record Fourth Quarter and Fiscal Year 2007 Results
Thursday March 27, 7:30 am ET
-- FY 07 revenues grow 75% to $42.1 million
-- FY 07 earnings up 43% to $6.9 million or 50 cents per diluted share

GUANGZHOU, China, March 27 /Xinhua-PRNewswire/ -- China Medicine Corporation (OTC Bulletin Board: CHME - News; "China Medicine" or "the Company"), a leading distributor and developer of prescription and over the counter pharmaceuticals, traditional Chinese medicines (TCM), nutritional and dietary- supplements, medical devices, and medical formulations in the PRC, today reported record financial results for the fourth quarter and fiscal year ended December 31, 2007.

    Fourth Quarter 2007 Highlights
    -- Revenues increased 89% from Q4 of 2006, to $16.2 million
    -- Gross profit increased 30% from Q4 of 2006, to $4.5 million
    -- Operating income increased 15% from Q4 of 2006, to $3.4 million
    -- Net Income increased 15% from Q4 of 2006, to $2.8 million

    Full Year 2007 Highlights
    -- Total revenues increased 75% to $42.1 million
    -- Gross profit increased 38% to $12.4 million
    -- Operating income increased 36% to $8.4 million
    -- Net income increased 43% to $6.9 million, or $0.50 per diluted share
    -- Obtained regional distribution rights to 774 new products in
       Guangdong Province
    -- Received RMB 800,000 in grants for aflatoxin detoxifizyme ("ADTZ")
       project from Education Department of Guangdong Province

"This was a very successful year for China Medicine, both in terms of financial performance and the execution of our business strategy. Our very strong revenue growth was driven by an expanded number of pharmaceutical products provided by our suppliers, as well as increased sales of our self- developed medical formulations and other intellectual property relating to pharmaceutical product development," said Mr. Senshan Yang, China Medicine's Chairman and CEO.

"In 2007, we expanded our distribution network to cover both municipal and rural areas of Guangdong Province in China, to support the Chinese government's recent policy to promote healthcare coverage among the rural and low-income population. In the short term, our expansion to cover these new markets resulted in a reduction in our gross margins as we increased sales of lower-cost over-the-counter pharmaceutical and TCM products. However, as spending on rural healthcare continues to increase, we believe that the rural markets have tremendous potential as increasing funding and an aging population drive demand for more advanced pharmaceutical products."

Fourth Quarter 2007 Results

China Medicine's total revenues in the fourth quarter were $16.2 million, an increase of 89% over the fourth quarter of 2006. This was attributed to a 112% increase in product sales, primarily driven by the increase in over-the- counter product sales made through the company's newly expanded distribution network to municipal and rural areas of Guangdong Province. Product sales totaled $14.7 million and accounted for 91% of total net revenues. Sales of prescription products accounted for 59%, and over-the-counter medicines accounted for 31%, of total revenues during the quarter. Medical formula sales accounted for the remaining 9% of total revenues, totaling $1.5 million, down 10% from the same quarter of 2006. This decline was due to stricter regulation by the State Food and Drug Administration, which must approve every transfer of ownership of a medical formula in China, and which recently increased the complexity of its approval process.

Gross profit in the fourth quarter of 2007 was $4.5 million, an increase of 30% over the fourth quarter of 2006. Gross margin was 28% of total revenues, down from 40% of total revenues in the fourth quarter of 2006. The decline in gross margin was due to higher sales of over-the-counter products, which have lower profit margins than prescription products, and the costs of expansion of the Company's distribution network to rural areas of China in 2007.

Operating expenses in the fourth quarter of 2007 were $1.1 million, up 120% from $0.5 million in the fourth quarter of 2006. This increase was due to higher selling, general and administrative expenses caused by increased public company expenses, higher salaries and employee sales bonuses, as well as the amortization of non-cash expenses from incentive options, increased advertising, trade-show and marketing expenses, and the costs of setting up a distribution network to cover the rural areas of Guangdong Province. The Company does not expect significant increases in selling, general and administrative expenses over the next several quarters.

Operating expenses represented 7% of total revenues in the fourth quarter of 2007, up from 6% in the fourth quarter of 2006.

The Company recorded $214,541 in research and development expenses in the fourth quarter of 2007, compared to $23,378 in the fourth quarter of 2006. The significant increase was primarily due to the pre-clinical study of Yutian Capsule, a traditional Chinese medicine designed for use in the treatment of lung cancer.

Operating income was $3.4 million in the fourth quarter of 2007, up 15% from $2.9 million in fourth quarter of 2006. Operating margin was 21%, as compared to 34% a year ago.

Net income for the fourth quarter of 2007 was $2.8 million, or $0.17 per diluted share, compared to $2.4 million, or $0.31 per diluted share in the fourth quarter of 2006. Earnings per share reflect an additional 8.2 million diluted weighted average shares, primarily due to the exercise of warrants and options in 2007, which generated $7.8 million in gross proceeds to the Company.

Full Year 2007 Results

For the full year 2007, total revenues were $42.1 million, up 75% from $24.0 million in 2006. Approximately 93% of revenue came from product sales and 7% came from medical formula sales. Gross profit for the full year 2007 was $12.4 million, an increase of 38% from $9.0 million in 2006. Gross profit margin was 29% in 2007, a decrease from 37% in 2006. Operating income was $8.4 million, up 36% from $6.2 million in 2006. Operating margin was 20%, as compared to 26% in 2006. Net income for 2007 was $6.9 million or $0.50 per diluted share, compared to $4.8 million or $0.63 per diluted share in 2006. Earnings per share reflect an additional 6.0 million diluted weighted average shares, primarily due to the exercise of warrants and options in 2007.

Financial Condition

As of December 31, 2007, China Medicine had $5.8 million in cash and cash equivalents, and approximately $28.5 million in working capital, an increase of 140% from $11.9 million in 2006. For the year ended December 31, 2007, China Medicine used $2.3 million in cash from operations, due to the increase of advances to suppliers and inventories required to support higher sales. China Medicine also received $7.8 million in proceeds from the exercise of warrants and options. Stockholders' equity as of December 31, 2007 was $30.8 million, an increase of 132% over the $13.3 million recorded as of December 31, 2006.

2008 Outlook

"During 2008 we expect to see continued solid growth in sales, along with improving margins as we leverage our expanded distribution footprint, expand sales of higher margin exclusive products, and see a growing contribution from sales of our proprietary medical formulations," said Mr. Yang. "We are very encouraged by the contribution of our R&D partnerships to building a strong new product pipeline, and expect to report significant clinical milestones over the course of 2008. We are also focused on moving our novel ADTZ product into commercialization this year, and expect to obtain our production permit for the treatment of animal feed and begin trial sales in 2008. If we are successful, this would set us up to begin recognizing meaningful revenues from ADTZ in 2009 and could be an important driver for the Company's future growth. Finally, China Medicine continues to evaluate opportunities to acquire a pharmaceutical manufacturing facility to strengthen our competitive position and achieve vertical integration for our proprietary products, while enhancing our overall profitability," concluded Mr. Yang.

Based on China Medicine's expectations of continued strong demand in the pharmaceutical market, the company expects to achieve revenue growth in the range of approximately 25-35%, gross margins in the range of 30-35%, and approximately 20-22% growth in net income for the full year of 2008.

Conference Call

China Medicine will hold its fourth quarter conference call for all interested persons at 9:00 a.m. Eastern Time on March 27, 2008 to discuss its results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 888- 419-5570. International callers should dial 617-896-9871. When prompted by the operator, mention conference passcode 25022850. If you are unable to participate in the call at its scheduled time, a replay will be available for seven days starting on Thursday, March 27 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 (international callers dial 617-801-6888), and enter the passcode 92139283.

About China Medicine Corporation

China Medicine Corporation is a leading pharmaceutical company which discovers and develops medical formulations and distributes over 2,200 pharmaceutical products in China including prescription and over the counter ("OTC") drugs, traditional Chinese medicine products, herbs and dietary- supplements. The Company distributes the products to wholesale distributors in 28 provinces, more than 300 hospitals, 500 medicine companies, and 1,788 drug stores throughout China. The Company actively develops a number of proprietary products for many uses including oncology, high blood pressure and the removal of toxins from food and animal feeds. For more information visit the Company's website at http://www.chinamedicinecorp.com .

Cautionary Statement

[David Randolph]

Thanks for posting these splendid results soxguy:

China Medicine Announces Record Fourth Quarter and Fiscal Year 2007 Results
PR Newswire (Thu 7:30am)

EPS of $0.5 for 2007 was much better than even I expected. The stock is trading at 4 times earnings.

The problem investors have with this stock is the heavy dilution, but we've already studied that and concluded that it's all coming from the company's reverse merger and is about to end.

$0.17 EPS for the 4th quarter alone was more than double the $0.08 I expected.

And prospects are very rosy.

If CHME.OB weren't an OTCBB traded stock I would say it is a sure thing that it will rise several bags from the current share price.

I'll continue holding CHME.OB for the long term.

[David Randolph]

It's a pity that there isn't a web based replay of the latest conference call.

The 10-K was out yesterday:

Form 10-KSB filed with the SEC

I find it very informative and clean of any "issues" or problems often associated with OTCBB stocks.

I remain confident that CHME.OB is an excellent long term investment, since it is trading at just 4.5 times 2007 EPS and I expect this EPS to grow over time. CHME.OB is starting to resemble AOB even more ... but I think CHME.OB will suffer less dilution in the future than AOB did, so I believe its potential is even higher. But everything needs to go well in their research and own production efforts.

[David Randolph]

CHME.OB seems to be ready to make a bullish breakout above $2.5. The fundamentals are very attractive and the information seems reliable (unfortunately this isn't the case with UTVG.OB).

I remain confident that by year's end I'll have a profit to show on this pick.

[buddjas1]

I actually bought today.  Sure could use some volume here. 

[la-onda]

from seeking alpha:
.....
In terms of growth, China Medicine Corporation (CHME.OB) reported its 2007 revenues were higher by a full 75%. Unfortunately, earnings were up by only 43%, coming in at $6.9 million, as margins were hurt by the company's move to cover more of the rural areas of its home base, Guangdong Province (see story). The initiative increased costs, and it also resulted in a greater emphasis on OTC and TCM drugs. In urban areas, prescription drugs are bigger sellers. The good news is that its all-Guangdong coverage means China Medicine could bid on distributing more products in the province and will add 774 products to its present portfolio of 2200 products. The company also develops medical products and would like to add manufacturing to solidify its vertical integration.

[David Randolph]

I actually bought today.  Sure could use some volume here. 

Seems like a good move.

Let's assume full conversion of preferred shares, warrants and stock options in 2008:



Since the current number of shares issued and outstanding is 15,164,887, with full conversion the number would then be 19,870,373 shares.

Now focusing on the company's guidance:

«Based on China Medicine's expectations of continued strong demand in the pharmaceutical market, the company expects to achieve revenue growth in the range of approximately 25-35%, gross margins in the range of 30-35%, and approximately 20-22% growth in net income for the full year of 2008.»

21% growth in net income would mean 2008 full year net income of $8,086,694. This divided by the 19,870,373 shares gives me $0.41 EPS on a fully diluted basis, which is less than the $0.5 achieved in 2007.

Anyway, the stock is trading at just 6 times this estimate.

I tend to think that it is critical for CHME.OB not to make any more private placements or stuff like that. It doesn't need to, since it has a strong balance sheet, for a $34 M market cap company:

«As of December 31, 2007, China Medicine had $5.8 million in cash and cash equivalents, and approximately $28.5 million in working capital, an increase of 140% from $11.9 million in 2006.»

Probably 2009 will be the really strong upside year for CHME.OB, because then there won't be anymore dilution and net income growth will translate into EPS growth. When EPS starts rising again I see CHME.OB earnings multiple expanding several fold ... like it happened with AOB, it once traded at just 4 times earnings and later this multiple expanded to more than 20.

I'll keep holding CHME.OB for the long term.

[buddjas1]

Looking good.  CHME may fit your technimental portfolio, now, as well.  You may find QSC appealing, as well; I am interested in your thoughts on that stock. 

[David Randolph]

Looking good.

Indeed, nice bullish breakout of the $2.5 resistance level.

CHME may fit your technimental portfolio, now, as well.

Nah, because it's an OTCBB and only NYSE, Nasdaq and AMEX stocks are allowed for that Portfolio (well, for the Main too, from now on).

AussieTrader has some plans to start a penny stock portfolio but I told him it probably wasn't a good idea over the long term. But, of course, if he wants to go ahead with the project, I don't oppose at all, the more experiences, the better.

You may find QSC appealing, as well; I am interested in your thoughts on that stock.

I don't see a thread for it on the Watch List, why don't you start one yourself? I'll put it on my "priority list" (well, I don't have such a list, maybe I should create one).

Just HOLD CHME.OB for the long term, I have this feeling/hope that the bags I'll receive from CHME's investment will more than compensate for UTVG's loss, even if I lose a full bag on this one.

[soxguy]

These china otc stocks are like a pet lion. Just when you think they have been tamed,they rip you up.

[la-onda]

roller coasting chart action 

[David Randolph]

These china otc stocks are like a pet lion. Just when you think they have been tamed,they rip you up.

roller coasting chart action 

I guess the sell off was due to the appearance of heavier than normal selling orders above $2.5. CHME.OB still has about 3 million warrants to be converted at $2.43, and perhaps those people want the cash as soon as possible (provided it's not at a loss).

I'm positive (as much as one can be these days - the more I know the more I see that I know nothing) that if CHME.OB closes, say, above $3, we'll see $10 over the next 6 - 12 months.

The floor seems to be protected by the attractive fundamentals (2007 EPS of $0.5) and strong balance sheet ($29 M in current assets and $0 debt, for $36 M market cap), whatever that's worth.

I'll keep holding CHME.OB for the long term.