China Nepstar Chain Drugstore Ltd. (NPD), China Jo Jo Drugstores, Inc. (CJJD) and China Yongxin Pharmaceuticals, Inc. (CYXN)

Of course, I meant “LEGAL” drugs……The china pharmaceutical industry is an exciting sector with a great deal of competition and no true national chains.  The market is, in fact, highly fragmented and while NPD has over 2,500 stores, it owns only around 1% of the overall market.

These stocks are three of the most popular ones and they have been penny stock darlings for quite some time.  They are all volatile stocks that could be in play at any time based upon news or general China sentiment

China Nepstar Chain Drugstore Ltd. (NPD)

An earnings release this week could make things interesting for NPD.  It is scheduled for August 11th…this Wednesday.  The stock has been on a flatline for the past several months forming a durable base at around $3.  The bollinger bands have formed a tight convergence around the stock which could portend some move off this base.  Here is the chart, so you can see what I mean.

NPD is phenomenally profitable and has a very strong balance sheet.  Debt is classified as short-term debt and is significant ($68 Million), but cash ($200MM) and other debt-coverage ratios make the high debt a non-factor.

China Jo Jo Drugstores, Inc. (CJJD)

The story for CJJD is all about growth.  They are the smallest of the three companies profiled today and on the largest growth curve, but growth is easier when you are going from 29 stores (a/s March 2010) to 60 (projected by March 2011).  Having said that, CJJD is also showing (unaudited) income statement numbers that are impressive….55 MIllion revenues for ye 3/31/10 with 12.7 EBITDA.  Balance sheet is not as strong, but there are no big concerns.

China Yongxin Pharmaceuticals, Inc. (CYXN)

CYXN is a bit different from the other two because of its range of services and products…in addition to running its 79  retail stores (a/o 12/31/09), they are also heavily involved in pharmaceutical distribution as well as selling their own line of herbal remedies and medicines.  Their unaudited numbers are good, too.  Not as good as the other two, but still respectable.  For the y/e 12-31-09, the company booked $47 million top line and showed EBITDA of $7.7 million.

I would recommend staying away from CYXN until the volume issue is resolved (I have calls out to the IR firm) to try and get some details on their recent trading patterns.  CJJD is a potential short to me, but on such low volume, any position is a HUGE risk.  NPD has earnings coming out this week.  There has been no runup to earnings, so I can’t even begin to call how this will trade on Wednesday.  I like NPD, personally, but will not be trading it until I know more.

Good Luck and Great Trading,

Jeffrey Dean

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