Citron Covers China Medical Corporation (OTC:CHME)

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Its obvious to everyone following the markets that since the Fed rate cut, China stocks are red hot. Contributing factors include China’s robust economy, the weak US dollar, and a typical wave of stock trading momentum …. anything with a China story is running hot.

In case you’re thinking “how do I find a little China stock that isn’t horribly overpriced, that actually has a strong balance sheet, real income and earnings, and hasn’t been discovered yet?”

Take at look at China Medical Corporation

This little company actually has a reliable income stream from selling generic medicines in China. They distribute over 2,200 products. But they also hold some enticing technology in the area of aflatoxins.

The science

Aflatoxins are fungi — molds that affect grains. They are considered to be carcinogenic to humans and livestock. Grains stored in hot humid conditions or grown in drought conditions are vulnerable to aflatoxin growth. For example, the FDA has restrictions on corn with more than 20 parts-per-billion.

Why the story is current?

Aflatoxin is periodically a worldwide issue. For example, because of drought conditions, it is currently showing up in Iowa corn.
http://webstar.postbulletin.com/agrinews/320577565340813.bsp

CHME was recently awarded a provincial research grant for ongoing work in product commercialization for aflatoxin-detoxifying project. The company is developing an enzyme that can eliminate aflatoxin from food and animal feed.
http://money.cnn.com/news/newsfeeds/articles/prnewswire/CNTH00627092007-1.htm

The company is also developing a test and treatment for lung cancer, which is epidemic in China, and other medicinals.

The financials: (As of June 30th, 2007)
  • Cash $2.7m (up 600% from $371,000 as of December 2006)
  • Assets $22.9m (goodwill and/or intangibles – zero)
  • Liabilities $898,000
  • Shares : 13.3m outstanding as of June 30, 2007
  • 3 months 6 months
  • Revenues: 7.76 Mm 12.6m
  • Net Income 1.127,000 263,000
  • EPS .09 .04

With large increases in inventory placed in its distribution pipeline, these numbers could be poised for a very significant bump in upcoming quarters.

The conclusion

Impressive and stable economic base, with some cutting edge technologies poised to meet a huge market opportunity, this is one little China stock with a lot going for it. Definitely one to add to your basket and keep on radar.