Friday, December 23, 2011

Weikang Bio-Technology Group (WKBT) In The Inscrutable Orient

Sometimes there comes a stock that sounds too good to be true.  Weikang Bio-Technology Group (WKBT) markets traditional Chinese medicinal treatments.  I first noticed it in a typical pumper mailer from Jim Trippon in October 2010, who used to name his service as variously "Conservative Investor Alert" and, neither of which I can locate on the Internet today.  Now he publishes China Stock Digest which links to a bunch of other links detailing his various business outreach efforts.  I don't have time to review all of those links.

Weikang Bio-Technology looks good, on paper anyway.  It reported extremely healthy financial results in 2009 and 2010 but those results have not at all been reflected in its share price.  This makes me wonder what the market knows about this thinly-traded stock's prospects.  I do not understand why a stock that reported $24M in net income in 2010 trades as a penny stock.  A private placement earlier in 2010 raised cash even though the company seemed to have plenty of cash on hand.  I'm more than curious to know why they needed to raise a private round given that their reported statement of cash flows shows more than enough free cash flow to fund growth internally.  This makes no sense.

I'm also curious about some key news the company has announced this year.  Weikang dismissed its auditing firm of Goldman Kurland and Mohidin LLP on May 9, 2011.  RedChip terminated its investor relations agreement with Weikang on May 12, 2011 because Weikang's management did not make themselves available to RedChip analysts.  This termination came only four months after Weikang initiated its relationship with RedChip.  Weikang announced on Nov. 15, 2011 that it will be unable to meet the SEC's filing deadline for its next 10-Q.  These news items, taken in sequence, have progressively negative connotations.  Their new auditor did give them a positive report in June.  I prefer not to invest in companies whose news releases make me wonder what's really going on inside a company.

Full disclosure:  No position in WKBT at this time.