China Medical System Holdings Limited (HKG:867): Secrets For Long Term Investors

Stock market crashes are an opportune time to buy. High quality companies, such as China Medical System Holdings Limited, are impacted by general market panic and sell-off, but the fundamentals of these companies stay the same. In other words, now is the time to buy strong, well-proven stocks at an attractive discount. See our latest analysis for China Medical System Holdings

China Medical System Holdings Limited, an investment holding company, produces medicines; and markets, promotes, and sells drugs. China Medical System Holdings was started in 1995 and with the company’s market cap sitting at CN¥37.51b, it falls under the mid-cap group. Size matters. The bigger the company is, the more well-resourced it is. The more money it produces from its operations which means it is less reliant on external funding. When times are bad in the market, being self-sufficient is extremely important as you can continue to operate at your own pace. Therefore, large cap companies are a great bet to invest in when you’re heading to the bottom of the cycle.

SEHK:867 Historical Debt July 13th 18
SEHK:867 Historical Debt July 13th 18

With CN¥2.11b debt on its books, China Medical System Holdings has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. With an interest coverage ratio of 29.01x, China Medical System Holdings produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Furthermore, its operating cash flows amply covers its total debt by 98.42%, above the safe minimum of 20%. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.

SEHK:867 Income Statement July 13th 18
SEHK:867 Income Statement July 13th 18

867’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 22.69%, outpacing the industry growth rate of 18.62%. It has also returned an ROE of 22.79% recently, above the industry return of 13.96%. China Medical System Holdings’s strong performance over time is a demonstration of its ability to grow through cycles, raising my confidence in the company as a long-term investment.

Next Steps:

China Medical System Holdings makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with China Medical System Holdings? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
  1. Future Outlook: What are well-informed industry analysts predicting for 867’s future growth? Take a look at our free research report of analyst consensus for 867’s outlook.
  2. Valuation: What is 867 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 867 is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.