C&O Pharmaceutical profit up 40% to $7.31mln

Company able to declare second special interim dividend of $0.028 behind strong cash position of $49.2mln.

Mainboard-listed C&O Pharmaceutical Technology (Holdings) Limited announced on Tuesday that its net profit increased 40% to HK$41 million ($7.31 million) for the three months ended 31 March 2010 (3QFY10).

During the quarter, the Group's revenue grew 17% to HK$166 million ($29.59 million) as a result of higher sales recorded for both Exclusive and C&O Branded product segments. Sales of Exclusive products increased 21% to HK$113 million ($20.14 million) while sales of C&O Branded products rose 12% to HK$49 million ($8.73 million) year-on-year, according to a C&O report.

Gross profit rose by 23% from HK$85 million ($15.15 million) in 3QFY09 to HK$105 million ($18.72 million) in 3QFY10, and the Group's overall gross profit margin raised from 60% in 3QFY09 to 63% in 3QFY10. The Group has been maintaining a high gross profit margin of at least 60% for the last three quarters, and barring unforeseen circumstances, C&O remains confident that its high gross profit margin will be sustainable.

The latest set of results lifted the Group's 9MFY10 revenue and net profit to HK$462 million ($82.36 million) and HK$96 million ($17.11 million), representing a growth of 20% and 35% respectively.

Other revenue surged to over HK$18 million ($3.21 million) largely due to the disposal of Nanjing Meizhanli Pharmaceutical Technology Co., Limited (NJMZ), which owned a plot of vacant land in Nanjing and certain research and development projects which the Group had no intention to advance them to product launch stage.

Distribution and administrative expenses have increased by 16% and 7% respectively, in tandem with higher sales. Excluding the gain arising from the disposal of NJMZ, the Group continues to display operational efficiency having recorded operating profit margin of 25% in 3QFY10 as compared to 22% a year ago.

Income tax increased significantly from HK$1.6 million ($285.152) to HK$18 million ($3.21 million) as a result of the provision for withholding tax amounting to HK$12 million ($2.14 million) in connection with the declaration of second special interim dividend this quarter.

The Group's balance sheet remains strong, with total cash (including fixed deposits held at banks and cash and cash equivalents) increasing from HK$193 million ($34.39 million) as at 30 June 2009 to HK$276 million ($49.18 million) as at 31 March 2010. The disposal of NJMZ further increased the Group's net cash by approximately HK$41 million ($7.31 million).

C&O's basic earnings per ordinary share rose from HK cents 4.42 ($.078) in 3QFY09 to HK cents 6.26 in ($.11) 3QFY10, computed based on 663,360,000 ordinary shares. Net asset value per ordinary share was at HK$1.054 ($0.19) as at 31 March 2010 (As at 30 June 2009: HK$1.186).

In aggregate, C&O has declared a total dividend payout of S$0.068 to date (including S$0.035 special interim dividend and S$0.005 interim dividend declared in 2QFY10).

Looking ahead, C&O remains optimistic about its performance, and is confident of achieving stable organic growth this year and in the coming financial year. The implementation of the Essential Drug List (EDL) and the expanded National Health Insurance Catalog will continue to bode well for the Group, generating higher demand of the Group's products included in those lists.

The Group's ongoing strategy of building its corporate brand name continues to take shape, in line with the PRC government's healthcare reform, and remains on track to strengthen its product portfolio. The Group has launched two new C&O Branded products, Levocarnitine Injection and Cefuroxime Axetil Capsule this quarter. To date, 24 C&O Branded products and 2 Exclusive products are listed in the National Health Insurance Catalog, while 7 C&O Branded products and 1 Exclusive product are included in the Essential Drug List.