Lotus (LTUS) Unloved but REAL

Lotus Pharmaceuticals (LTUS), is a growing developer and producer of drugs and a licensed national seller of pharmaceutical items in China. Lotus operates its business through its two controlled entities: Liang Fang Pharmaceutical, Ltd. and En Ze Jia Shi Pharmaceutical, Ltd. Lotus' current drug development is focused on the treatment of cerebro-cardiovascular disease, asthma, and diabetes. Liang Fang sells drugs directly and indirectly through its national sales channels to hospitals, clinics and drugs stores in 30 provinces.

The price is depressed like more Chinese pharmaceuticals despite the low valuation. EPS expectations for 2010 are $ 0.45 (2009: $ 0.33). Book value in the most recent quarter was $ 1.39. Lots of new drugs in the pipeline. Stock price around $ 1.20 .......can you believe it?

The sluggish world economy and ongoing health care reform policy impacted the development of China's pharmaceutical industry in 2009. This year however will see the continuation of the reform measures, as well as other developments and trends in the sector in the context of a recovering global economy.

Figures from the State Food and Drug Administration's (SFDA) Southern Medicine Economic Research Institute (SMERI) showed that medical insurance funds will be raised by RMB 400 billion ($58.57 billion) in 2010 which may lead to the expansion of the domestic drug market by RMB 200 billion ($29.28 billion).

According to the SMERI, the production value of China's pharmaceutical industry will grow 23 percent year-on-year in 2010. International pharmaceutical consultancy IMS Health Inc. estimates put China as the world's third largest pharmaceutical market by 2010.

China's pharmaceutical companies will continue to review their operational and business structures in 2010 as companies realize they have to grow stronger to enhance their competitive advantage to make the most of market opportunities.

Further, the establishment of pharmaceutical distribution alliances over the past several years has set a good foundation for future mergers and acquisitions (M & A).

With this in mind I expect bright futures with significant gains for promosing Chinese health care stocks. Lotus is one of them.

POSITION: LONG (ENTRY: 1.20)