China Medical (NASDAQ:CMED)

Second Quarter 2011 Results

• Net revenues of RMB238.5 million (US$37.4 million) for 2Q FY2011, representing an 18.1% increase from the corresponding period of FY2010.
• Net income was RMB33.3 million (US$5.2 million) for 2Q FY2011, compared to net loss of RMB2.9 million for the corresponding period of FY2010. Non-GAAP net income was RMB89.6 million (US$14.0 million) for 2Q FY2011, representing a 36.9% increase from the corresponding period of FY2010.
• Non-GAAP EPS for second quarter 2011 was $0.53 vs $0.39 in prior year

"We are pleased to receive SFDA approval on our second PCR-based companion diagnostic assay on KRAS mutation for colorectal cancer targeted drug. We see huge potential on personalized medicine for cancer patients in China and will continue to develop this market segment." commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company.

First Quarter 2011 Results

• The Company reported net revenues of RMB237.1 million (US$36.7 million) for 1Q FY2011, representing a 27.4% increase from the corresponding period of FY2010.
• Net income was RMB35.7 million (US$5.5 million) for 1Q FY2011, representing a 6.1% increase from the corresponding period of FY2010
•  Non-GAAP net income was RMB90.5 million (US$14.0 million) for 1Q FY2011, representing a 58.7% increase from the corresponding period of FY2010. Non GAAP EPS for 1Q 2011 was $0.53 vs $0.32 in 2010

"We have recently implemented the first steps of two new initiatives which will support our long term growth," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. "We have established a collaboration with Da An Health for our domestic market as well as a collaboration with Leica Microsystems for both the domestic and the international markets. Da An Health is a fast growing independent laboratory service network serving mainly small and mid-size hospitals in China. We believe this collaboration will help us penetrate over time a new and big customer group for our molecular diagnostic products in a cost effective way. The collaboration with Leica Microsystems is to implement our strategy to enter the international market for our products through partnerships with leading global players. The partnership with Leica Microsystems substantially reduces our business risks and costs associated with entering the international market considering the complicated regulatory approval processes, medical reimbursement conditions and distribution channels in different countries and regions. The joint research and development with Leica Microsystems to automate our FISH probes on Leica's BOND system is important for the high volume users such as independent laboratory service networks in major global markets as well as existing and potential high volume hospital users in China. We are working closely with our new partners to realize the value of these collaborations for all of us. Meanwhile, we are also in discussion with a number of leading global players for different types of collaborations for our other molecular diagnostic products."

"Our DSO increased in recent quarters due to slower payment from some of our ECLIA distributors and the change in our sales mix," commented Mr. Sam Tsang, Chief Financial Officer of the Company. "ECLIA distributors normally pay in about 3 months but some of them took longer time to pay in the past few quarters. Slower payments from distributors indicate a possible risk of bad debt, and we have recently taken measures to control this risk including lowering credit limit for certain slow paying distributors and control over the order fulfillment for these distributors according to their payments. Meanwhile, we are adding new distributors to diversify the risk. The change in sales mix relates to the increasing portion of our revenues from our molecular diagnostic products which we sell to hospitals directly. These hospitals normally pay us in 6 to 12 months and the bigger the hospital, the longer the payment cycle. However, we consider the risk of bad debt from these hospitals to be very low considering that they are tier 1 hospitals, have a strong financial position and are government-owned. Recently, we have increased compensation of our direct sales personnel based on collection from hospitals to increase incentive for collection. On the other hand, despite the increase in DSO in the past few quarters, we still generated sizeable cash flows from operations. We expect our DSO to become stable and decline in the coming quarters."

"We are confident in handling our convertible debts before maturity," further commented Mr. Sam Tsang. "The nearest maturity of convertible debts is approximately US$17 million in November this year which is a small amount considering our cash position of approximately US$192 million. The next maturity of approximately US$247 million of convertible debts will be in August 2013. We believe that our current cash position, our future free cash flows and our access to other sources of funds such as commercial banks in China will provide sufficient liquidity to pay off the debts before maturity. We have noticed that the debts have been trading at a substantial discount which is favorable to us."

We made capital expenditures of RMB1,789.7 million, RMB715.5 million and RMB5.9 million (US$0.9 million) in the fiscal years ended March 31, 2009, 2010 and 2011, respectively. We expect to spend approximately RMB26.2 million (US$4.0 million) in the fiscal year ending March 31, 2012, consisting mainly of the purchase of new manufacturing equipment to expand our production capacity and the renovation of our existing facilities. We expect to finance such capital expenditures mainly through our existing cash balances carried forward and cash generated by our operating activities.

We believe that our working capital is sufficient for our present requirements.

BEIJING, June 14, 2011 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, today announced that Chengxuan, a major shareholder which is owned by Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company, informed the Company that Chengxuan purchased 110,000 of the Company's American Depositary Shares ("ADSs") in the open market on June 13, 2011 at an average price of US$7.33 per ADS.  Chengxuan also indicated the intention to purchase additional ADSs in the open market in the future in compliance with the Company's insider trading policy.

4Q FY2010 Unaudited Financial Results

• The Company reported net revenues of RMB230.4 million (US$35.2 million) for 4Q FY2010, representing a 31.1% increase from the corresponding period of FY2009.

• Gross margin was 61.4% for 4Q FY2010 which decreased year-over-year from 64.9% for the corresponding period of FY2009.

The year-over-year decrease was primarily due to the classification of amortization of SPR intangible assets from operating expenses to cost of revenues after the commencement of sales of HPV-DNA chips in 2Q FY2010 which offset the positive impact on more contribution from the sales of FISH probes which generate higher gross margin. Non-GAAP gross margin was 82.4% for 4Q FY2010 which increased year-over-year from 77.7% for the corresponding period of FY2009. The year-over-year increase in non-GAAP gross margin was primarily due to more contribution from the sales of FISH probes which generate higher gross margin.

• Net income was RMB16.1 million (US$2.5 million) for 4Q FY2010, which improved significantly from RMB4.8 million for the corresponding period of FY2009.

• Non-GAAP net income was RMB75.0 million (US$11.5 million) for 4Q FY2010, representing a 45.7% increase from the corresponding period of FY2009.
• Non-GAAP EPS was $0.42 vs. $0.29

"We are pleased with the quarterly results, in particular, the continued growth of our molecular diagnostic business during the seasonally weak quarter. We expect our FISH business and HPV-DNA chip business to drive our growth in the following quarters," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. "We will continue to expand our product offering in FISH probes and PCR assays as well as develop a new SPR analyzer through investment in research and development. We will leverage our established sales networks to introduce our new products to our hospital customers. In addition, we are working on several initiatives to support our sustainable growth including discussion with a leading independent laboratory testing service group in China for a potential collaboration to promote the use of molecular diagnostic tests to the group's hospital customers."

Mr. Sam Tsang, Chief Financial Officer of the Company commented, "We issued new convertible notes in December 2010 to extend our debt maturity profile. We have been focusing to improve our leverage profile and have reduced our net debt to adjusted EBITDA ratio from 5.1 times to 3.3 times. However, we believe that we are still maintaining relatively high leverage, and the continued improvement in our leverage to the level of 2 times or below is our priority. We have been very cautious in making capital expenditures and did not consider new acquisition and will continue to do so. Meanwhile, we will maintain our investment in product research and development which will support our future growth. We will also continue to invest in our direct sales network to attract and retain Tier 1 hospitals which are major consumers in China's healthcare industry."

Outlook for first fiscal quarter ending June 30, 2011

• Target net revenues are expected to range from RMB232.0 million (US$35.4 million) to RMB234.0 million (US$35.7 million), representing a year-over-year increase of 24.6% - 25.7%.
• Target non-GAAP net income is expected to range from RMB73.0 million (US$11.1 million) to RMB74.0 million (US$11.3 million), representing a year-over-year increase of 28.0% - 29.8%.
• Target non-GAAP diluted earnings per ADS* is expected to range from RMB2.75 (US$0.42) to RMB2.79 (US$0.43), representing a year-over-year increase of 26.1% - 28.0%.

Outlook for full fiscal year ending March 31, 2012

• Target net revenues are expected to range from RMB970.0 million (US$148.1 million) to RMB995.0 million (US$151.9 million), representing a year-over-year increase of 15.2% - 18.1%.
• Target non-GAAP net income is expected to range from RMB310.0 million (US$47.3 million) to RMB318.0 million (US$48.6 million), representing a year-over-year increase of 13.5% - 16.5%. The slightly lower growth rate in non-GAAP net income is primarily due to the full year impact of additional interest expense arising from new convertible notes issued in December 2010.
• Target non-GAAP diluted earnings per ADS* is expected to range from RMB11.70 (US$1.79) to RMB12.00 (US$1.83), representing a year-over-year increase of 12.6% - 15.5%.

Update on Receivable from Chengxuan

As of December 31, 2010, the remaining amount of receivable due December 31, 2010 from Chengxuan, one of the Company's major shareholders and owned by Mr. Xiaodong Wu, was reduced from US$30 million to US$18 million. This receivable relates to the sale of the Company's HIFU business to Chengxuan. Chengxuan made two payments to the Company in the amount of US$8 million and US$4 million during 3Q FY2010. Subsequently, Chengxuan made another payment of US$3 million to the Company in January 2011. Chengxuan indicated to the Company that payments will be made to the Company to pay off the remaining balance together with interest thereon before June 30, 2011.

3Q FY 2010 Results:

• Revenue is up 30% to $33.9 million from $26.2 million
• Net Income is up over 65% to $11.4 million from $6.9 million
• Non-GAAP EPS is up 65% to $0.43 per share from $0.26

2Q FY2010 Highlights

• Revenues increased by 21.5% year-over-year to RMB201.8 million (US$30.2 million).
• Non-GAAP net income increased 270.1% year-over-year to RMB65.4 million (US$9.8 million).
• Non-GAAP diluted earnings per ADS*, as defined below, increased 273.1% year-over-year to RMB2.50 (US$0.37).
• Adjusted EBITDA, as defined below, increased 62.6% year-over-year to RMB116.3 million (US$17.4 million).
• Net cash generated from operations was RMB67.3 million (US$10.1 million).

Outlook for 3Q FY2010

• Target revenues are expected to be not less than RMB220.0 million (US$32.9 million), representing a year-over-year increase of not less than 27.7%.
• Target non-GAAP net income is expected to be not less than RMB74.0 million (US$11.1 million), representing a year-over-year increase of not less than 62.2%.
• Target non-GAAP diluted earnings per ADS* is expected to be not less thanRMB2.82(US$0.42), representing a year-over-year increase of not less than 62.1%.-

Outlook for FY2010

• Target revenues are expected to be not less than RMB846.0 million (US$126.4 million), representing a year-over-year increase of not less than 17.0%. The year-over-year increase of annual revenues for FY2010 is lower than that of 3Q FY2010 because of the 10.9% year-over-year decrease in quarterly revenues of 1Q FY2010.
• Target non-GAAP net income is expected to be not less than RMB280.0 million (US$41.9 million), representing a year-over-year increase of not less than 49.5%.
• Target non-GAAP diluted earnings per ADS* is expected to be not less than RMB10.69 (US$1.60), representing a year-over-year increase of not less than 49.9%.