Back on Dec 8th, we sent out a report on FCPG First China Pharma citing the stock as the best dollar chart we were tracking. A 500 milion acquisition (See Nov 30 press release) had been the driving force behind the new found strength.
Also at that time, we expanded on a report from NBT research labeling the stock the only pure-play available to US investors to capitalize on the inevitable mass consolidation of drug/medical product wholesalers in China. In addition, the report emphasized that the company was well on its way to becoming one of the top drug wholesalers in China.
At the time the stock was trading at 2.40. Following the report the stock went on a terror to 5.90.
Now that FCPG has come back down to earth following the incredible runup from a buck to nearly 6 earlier in month, we want to revisit and expand a little on recent bullish news.
First, take note on the latest, in a string of bullish news events centering around a very rapid expansion campaign. The news below from Dec 16, continues to expand on the rapid growth plan they’re on as they an increasing amount of market share in the wholsale drug distribution mkts in China.
First China Pharma Continues Sales Growth and Territorial Expansion With 2 New Hospital Distributor Agreements in Anhui Province, ChinaMarketwire(Thu, Dec 16)
Excerpt: ….the signing of two new distribution agreements which significantly increases the Company’s profile and strategic expansion goals currently focused on Anhui Province (pop. 61,350,000) and also brings the number of recently signed hospital contracts to 15 in just under 60 days.
This news comes on the heals of two other expansion reports earlier in December:
First China Pharma Expands Nationally With 3 Hospital Agreements in New TerritoriesMarketwire(Tue, Dec 7)
Excerpt: …..These recent agreements bring the Company to a total of thirteen new hospital-level contracts signed in just under 60 days, a new benchmark of success demonstrating Management’s extraordinary level of effort and commitment towards increased market growth.
First China Pharma Continues to Grow Market Share — Company Signs Agreements With 2 Additional HospitalsMarketwire(Thu, Dec 2)
Last week a new report was issued at NBT Equity that expands in greater detail, on topics they brought up earlier, in addition to new catalysts that likely will trigger an explosion in sales into 2011.
Some of the reports highlights:
Cardinal Health’s $500M acquisition of China’s largest drug wholesaler on November 29, 2010 kicks off the great global drug distribution endgame in China……FCPG is gaining numerous competitive advantages in its quest for building a $1 billion multi-province drug distribution portfolio (in particular) :
– AProprietary Online Distribution License
– Significant Pricing Power over regional distributors
– Proprietary Online Computer Marketing and Fulfillment System
– Proprietary B-to-B E-Commerce System- Other Provinces XYT can utilize the internet fulfillment system licensed in Yunnan province in some 34 other provinces, thereby creating an immediate advantage over its competitors throughout China.
– Existing large profitable customer base. XYT currently has approximately 5,000 downstream customers with annual sales of nearly ¥140 million.
The parent company FCPG is in the process of securing a significant financial war chest to support this growth. With the initial purchase of Yon Yu (the largest ethical drug distributor in China) at .5x sales valuation, we see plentiful equity and debt capital available to FCPG to fuel for its provincial consolidation strategy. XYT will leverage its competitive advantages by:
• internet fulfillment of orders;
• providing PCs to enable internet orders;
We pointed this out in the past, but it is worth reminding on. XYT has a significant strategic advantage over most of its competitors as it is one of a handful of pharmaceutical distribution companies in China that has obtained government approval to market products and fills orders over the internet. XYT possess the “License of Internet Pharmacy Information Service” . This license enables XYT to bypass municipal and county pharmaceutical distributors….And by bypassing, XYT is, and will be able to offer products to its customers at a significantly lower price than its major competitors while maintaining its margins.
Bottom Line: We increasingly consider FCPG a ground floor opportunity. Now that we’ve seen what the stock pps is capable of, in addition to the continuing rounds of territorial / hospital expansion news since we last reported, might be time to revisit back under 2.
Given the press releases have been frequent, We think another one is on the way that will be related to the addition of more hospitals to their distribution ring. And this, itself will trigger renewed upside, with another outside chance of the stock exploding.
Technically, focus on a higher low ensuing, vs where it held prior to the Dec runup (which was a dollar). Mid 1-2 range would be our target. 1.60
Debate a small position now….Then consider adding to on future base building patterns into 2011.