China Renji (648 HK, HK$0.051) - First take FY12/08A results

FY12/08A result headline numbers.  China Renji (648 HK) announced FY12/08A results.  Turnover was up 255.2% YoY to HK$207.6m, gross profit increased 562.6% YoY to HK$163.0m.  In terms of continuing operations, Renji swung to a profit of HK$52.1m from a loss HK$76.9m a year ago.  The company also booked a impairment charge of HK$40.4m for the year, the result of the annual impairment test of its intangible assets, from the original acquisition of Anping Renji in Jul 2007.

Adjusted net profit of HK$92.5m beats expectations.  Excluding the impairment charge, turnover and gross profit was in line with expectations while the adjusted net profit of HK$92.5m beat our expectations of HK$68.7m.  The main reason for the outperformance was due to:  1)  larger than expected other gains and income of HK$14.3m (vs SBI E2: HK$5.6m); 2) lesser finance expenses of HK$17.0m (vs SBI E2: HK$24.2m) and 3) lesser tax expense of HK$5.9m (vs SBI E2: HK$25.9m).  However, what concerned us was the larger than expected administrative expenses of HK$61.9m (vs SBI E2: HK$46.6m).

Share price rally has discounted results.  We will be meeting with the management to get more colour on the numbers and will issue a research report shortly.  On a trading basis, though the result did beat our expectations, we think that it has been fully discounted by the stocks' recent rally (up 22.6% since beg-Mar), driven by government announcements of favourable policies towards private investment into the specialist healthcare services sector.  The counter is currently trading at 5.5x FY12/09F P/E prior to earnings revision.

Update on Tuesday, April 14, 2009 at 5:38PM by VAYUE.com Team

China Renji (648 HK, HK$0.068) - 36.0% rally today!!

Following up on our post this morning, the market obviously had a different view to us.  On the day when the HSI index rallied 4.6% (up 678.8pts to 15,580.1pts), China Renji's stock price surged a whopping 36.0% to HK$0.068 (on high volume HK$34.6m).  While our target price for the counter is HK$0.09 (80% upside prior to today's trade), we admit the one day surge caught us by surprise on the upside.

That said, today was a strong day for oversold counters in: 1) small cap healthcare plays and 2) small cap, both of which China Renji fitted nicely into.  Other strong performers which are normally on our radar screens were:

• Small cap general - China Seven Star (245 HK, HK$0.083) up 50.9%, Yue Da Mining (629 HK, HK$0.13) up 19.0%, Waison (3393 HK, HK$0.49) up 15.3%
• Small cap healthcare - Sino-Biopharma (1177 HK, HK$1.47) up 6.5%, Shineway (2877 HK, HK$5.05) up 9.8%, Mingyuan (233 HK, HK$0.61) up 9.0%