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China Health

Bob Moriarty
Feb 5, 2011

Our readers have been well served with the companies who have advertised over the last 10 years. Home runs started with Novagold and continue with Rio Alto, Endeavour Silver and Gold Canyon.

Someone asked me if non-resource stocks would do well with our readers and my response was yes if it's something interesting. Well, the company he was talking about is one of the hottest fliers in the Chinese healthcare market. I like it a lot.

The company began operations in 1993 and today serves a majority of the top 1000 hospitals in China. China Health Labs (CHO-V) designs and sells its own branded as well as 3rd party diagnostic medical products to health facilities in China.

In the United States, some 16% of GDP is spent on health care. China is a tiny 4.6% according to Wikedpedia. Clearly China has a long way to go to catch up with the Western World. CHO has a sort of franchise as China spends $125 billion US on the health care system over the next three years. Some 40,000 new diagnostic facilities will be built in mainly rural areas that lack medical care facilities at present.

The company has a tremendous competitive advantage in that it is the only domestic supplier of Point-Of-Care Technology (POCT) to the Chinese military.

As you can expect, sales and profits are climbing like a cat going up a tree with its tail on fire. Gross margins are 25-30%. In the last year, 2010, they estimate sales of RMB 211 million compared to RMB of 145 million in 2009 with gross profit more than doubling from RMB 24 million to RMB 50 million.

China's medical device market is growing at a rate of 17% per annum. China spends currently $38 per capita in comparison to the G8 average of $2,431. China Health is estimating growth for the company to be at 50% yearly for the next 5 years.

The record of sales growth and profit is set to expand rapidly as governments in China invest heavily in health care. Investors can look forward to a regular series of announcements of new contracts.

As much as I like the resource companies at this point in time in world financial history, a $200 million dollar gold company is a pretty fair size and a billion dollar gold company is giant. This is healthcare and there is unlimited demand. I expect China Health Labs to go way beyond a billion dollar market cap. Unlike resource companies, there is no reason for them to be constantly diluting. They can finance their operations and growth internally.

The company has only been public since October. Insiders and institutions own a majority of the shares and there is only a small float. With estimated earnings for 2011 of $.15, the company is selling at a tiny 7 times forward earnings.

Investors should think of this as a savings account with a big interest rate. Unlike resource stocks, CHO can't hit a 500-meter intercept of 2 ounce gold tomorrow and go up 10-fold but they are cheap now and growing rapidly. This is a stock you can buy and go to sleep on.

We are biased. We do own shares and they are an advertiser. Their website has been updated and is current. The company is responsive and will be happy to answer any questions you might have. It's your money, do your own DUE DILIGENCE.

China Health Labs
CHO-V $1.35 (Feb 4, 2011)
CHLBF-PK 64.7 million shares
China Health website


Bob Moriarty
President: 321gold

321gold Ltd