Golden Meditech (801.HK)            BUY (TP: HK$2.00)

Expect strong 2H10 results; Funtalk-better-than-expected

Golden Meditech (GM) will announce FY10 annual results on 22nd July ’10. We expect that 2H10 at HK$111.4m will contribute about 69.8% to FY10F net profit. Net profit of Funtalk of US$37.1m (~HK$246.6m) was 27.1% above our estimates. Further, China Cord Blood Corp. (CCBC) announced FY10 earnings, which at RMB49.2m exceeded our estimate by 3.8%. Accounting for these changes we expect GM’s net profit to about HK$159.5m, which would be an increase of 25.9% YoY on a normalized basis. We maintain our BUY-rating on the stock with a price target of HK$2.00, for now which translates into 10.8x FY11F and 8.7x FY12F fully diluted PER and a potential upside of 35.1%.

ABRS estimate leaves room for surprise. Our estimate for ABRS sales is on the conservative side. We expect that sales of the equipment dropped 31.3% YoY at HK$139.8m from HK$203.4m in FY09, due to the price reduction and the market saturation of tier 1 hospitals. As consumables only grew 3.6% in 1H10, we expect only 10% YoY growth for FY10F, or about HK$80.5m. From the new products, such as PES we expect roughly HK$15m in sales. ABRS’ status as mandatory medical equipment and a compulsory higher usage in medical procedures, as management expects, would act as catalyst for the segment.

Funtalk earnings 27.1% above estimates. Funtalk surprised with revenue up 49.8% at US$854.1m from US$570.7m in FY09. 2Q10 net profit accounted for 72.6% of FY10 earnings, mainly due to product-mix adjustments leading to gross margin improvement from 12.9% in 1H10 to 17.2% in 2H10. Gross margin for FY10 was 15.1% vs. 12.3% in FY09 and net margin was 5.2% in 2H10 vs. 2.1% in 1H10. We adjust our earnings estimate to account for the higher contribution of Funtalk and arrive at a net profit estimate for FY10F of HK$159.5m (HK$176.3m on a normalized basis). The jointly controlled entity will contribute about 46% to GM’s FY10F normalized net profit as compared with 34.3% in FY09.

CCBC’s net profit was 3.8% above expectation. CCBC’s net profit was RMB49.2m, up 137.1% YoY and we estimate contribution for this year to be about HK$39.9m.

Valuation. We think that we are quite conservative and that our estimate for ABRS may be beaten by the results. We believe, Golden Meditech is undervalued and maintain our BUY-rating with a TP of HK$2.00 (consensus TP HK$2.58), as we await results next week, after which our model will be reviewed. Our TP translates into fully diluted FY11F PER of 10.8x and 8.7x for FY11F.