Last week I posted a preliminary "deeper look at Q1". It was done relatively quickly to generate discussion and summarize some major points. Now that I have a bit more time I wanted to clarify/expound upon that post a bit as well as address some excellent points brought up by members of these boards.
I also updated the link for the numbers for the quarter. It looks at a core growth estimate, reorganizes some of the data, looks at operating expenses, and accounts for the typo on the total revenue for the quarter in USD (19.9 not 19.1 million)... which makes Nawar's estimate even closer.
http://spreadsheets.google.com/pub?key=p
Major Points:
1. Amortization of intangible assets (15,607k RMB)
This, as described, is mostly due to FISH being worth less each year (due primarily to the threat of competition as time goes on), the figures will be updated by the company on this,it does not affect cash flow, but it does affect GAAP earnings. The significance for investors: it can depress margins a bit and make GAAP earnings look lower. However, it should be constant or even decline from here on out so it should not affect growth figures nearly as much or at all after this year. It appears to be calculated in the "cost of revenues" segment of the financial tables (which jumped from 26.6RMB to 57.5RMB in Q1 yoy). This assumption is based on the fact that the cost of revenue of a percentage of total revenue increased from .29 to .38 yoy (see figure table) and these numbers are not explicitly listed anywhere else except in the separate reconstitution of non GAAP from GAAP calcs.
The result is a decrease in gross and net margins as well as in the calculated operating income figures.
2. Stock Compensation expense. (1,379k RMB)
As was mentioned by szsz this is not the convertible bonds expenses but options granted to employees. This increased quite a bit from last year. Unlike amortization/depreciation I view this as a real cost because it is give in lieu of cash and dilutes the shares. It is still small but increases are something to watch.
3. Interest Expense and amort of convertible bonds
This increased too and is calculated in the financing section. Unlike what I originally thought might be the case on the first post, a closer look reveals that it does not affect operating income since it is considered a financing expense. I was wondering if anyone knows when these bonds are set to mature?
4. Others
RD costs increased 68%, marketing 38%, general admin: 21%. Still the non Gaap profit margin was 45% and Gaap was 34%.
(pretty darned good). Still something to watch especially in light of the point that kvn brought up about P/S ratio over 10. (More on this later).
5. Core Growth
The core growth, at least excluding the amort expenses but not the stock options, leads to a growth rate of 35.5% yoy for the quarter. (see figure table).
I think that this is a very reasonable growth rate to look for in the near to mid term. As such a ((P/E)/G) of about .8 would project the stock price at 56 by March of 09 (56/2.00)/35.5 = .8 . This assumes an earnings est of 2.00 for fiscal year ending in M09. Of course the real PEG at that time in this scenario would be looking at m10 earnings so would actually be even lower at a price of 56. The price may thus be higher.
6. Nawar's estimates- again see the figures, we all should commend Nawar on being quite accurate overall on revenues. It is really helpful to have someone like this on board here. Only the HIFU was off a bit (9%), due to assuming additional units sold over the backlog. The overall revenue estimate was within about 2% of the actual released figures! The earnings estimates were also very close on a non GAAP basis (est .30 - .33 vs .34 actual) but of course a bit further off on a GAAP basis because a 50% margin was assumed and the amortization affected margins a lot. On a core earnings basis (excluding amort of intang) the EPS would have been .32. (see figures table).
Given the large non-cash amortization costs it will be interesting to see if analysts will use the GAAP or a core earnings for future estimates. I don't think the analysts expected these large costs in their original estimates (hence they really underestimated a lot and got lucky) but maybe they did and deserve credit for being so accurate on this quarter.
7. Summary
Excellent quarter. The revenue growth was huge and on a non GAAP and core earnings basis the growth was impressive as well. While P/S is high the (P/S)/(revenue growth for the quarter(yoy) ) was about 11.81/66 = .18... compare this to pepsi (2.99/10)= .30 or goog (11.88/58)= .21 or aapl (5.32/24) = .22 and it can be seen that cmed is at least in the right ball park. As long as the revenue and earnings keep growing. As we all know that is the biggest key and must be watched very closely. I think that the biggest threat, at least to the HIFU segment, may be an alternative cure. There are a lot of companies searching for this. However, many are focused on specific parts of the body and HIFU can target many and has already shown results, unlike many of the even more experimental procedures that many biotechnology companies aer working on.
Questions, comments, insights?
That's it for me for a while. Best to Saleem, Nawar, szsz, jmp, and others. Nawar, I hope that your business sale goes as planned so that you can get back on here and continue to provide your thoughts and posts.
Best,
Jon
Posts
No comments:
Post a Comment