This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

For Chinese Pharmacy Chain, Sky's the Limit

NEW YORK ( TheStreet) -- China Jo-Jo Drugstores (CJJD - Get Report) runs 45 retail pharmacies in the Chinese city of Hangzhou.

All have on-site, licensed doctors specializing in Western and traditional Chinese medicine, or TCM. A few even have adjacent urgent care clinics. The average store size is about 2,800 square feet (roughly a standard mall location), and carries between 2,500 and 7,500 products. Pharmaceuticals account for about 38.5% of sales, over-the-counter 34.5%, TCM 11.5%, and nutritional supplements 9.3%.

China Jo-Jo is yet another "reverse merger" Chinese small-cap. It uses a defunct, renamed U.S. corporation, in this case Kerrisdale Mining, to access foreign capital via a web of holding and management entities. This is done because Chinese regulations disallow foreign ownership exceeding 49% of any pharmacy chain operating over 30 stores.

The actual operating subsidiaries in China are the "HJ Group" companies, primarily Hangzhou Jiuzhou Grand Pharmacy. The HJ Group companies are not owned by China Jo-Jo but maintain contractual agreements that, in effect, control them. Three founders -- Lei Liu, Li Qi, and Chong'an Jin -- own 47% of China Jo-Jo, and essentially 100% of the operating subsidiaries, so this setup seems feasible in order to finance through U.S. investors. The stock started trading on the Nasdaq in April of this year at $5 a share.

The sexy part of this company is growth potential. With only 45 stores, the sky is the limit, even in Hangzhou, with a population exceeding 8 million. The company aims to double store count this year, from 31 to about 60. The next step would be Zhejiang Province, with a population of more than 50 million.

Chinese gross domestic product continues to expand at an 8% to 10% rate, and health-care spending even faster than that. China's health spending as a percent of GDP is just 6.4%, compared with the U.S.'s 15%. Furthermore, the population of the country is aging, universal health-care coverage is being targeted by 2020, and China continues to see increasing urbanization, creating higher wages and better access to pharmacies. China Jo-Jo should be able to grow revenues at rates exceeding 20% annually for many years, assuming solid execution.

After the public offering, China Jo-Jo's balance sheet is in good shape, with close to $16 million in cash and about $3 million in short-term loans and notes. Operating margins are in the low 20% vicinity, which is well above large Chinese chain Nepstar (NPD - Get Report) and, for that matter, U.S. firms like CVS (CVS - Get Report) and Walgreen's (WAG), both under 10%. There are some concerns about free cash flow, as China Jo-Jo is cash flow negative over the past 12 months and reported under $1 million in cash flow last year (vs. over $9 million in net income reported). Large cash advance requirements to suppliers, over $10 million currently, seems to be the main culprit, as many firms in China do not do business on credit. (In fact, Jo-Jo's sales are paid over 80% in cash.)
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
CSKI $0.06 -75.00%
WAG $81.65 2.05%
CJJD $3.35 0.00%
CVS $105.55 0.00%
NPD $2.20 0.00%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs