Bottom Line Profit and the Impact of eHealth market

1. In the half year report,the profit margin of the firm has improved to 5.7%. I expect this to continue to improve, as the company offshore its sleep device by the end of 2015, which accounts for 30% of the revenue.

2. The other important thing that impacts the profit margin is the economic of scale. If CMP can continue to generate more sales in the areas of sleep devices and Neuro Diagnosis/Research(EEG system), the benefit of offshoring will be even more prominent. [Sleep devices and Neuro Diagnosis/Research accounts for about 50% revenue].

3. One major concern with the company is its sale order growth in Europe and Aus region. Despite of having 6% growth pcp, its Asia region generate 13%, German division 10%, US region maintains a 6%, while AUS with a 4% and no growth in Europe. Currently, Asia account for 32% revenue, US for another 32% and Europe and Australia has 18% each. I think the CMP should continue to shift its focus to Asia, US and the DWL unit in German. Australia and most of the Euro-countries remains quite fragile, except for Germany.

4. In eHealth development, we should be expecting more concrete announcement on commercialization in the coming months. Back in July, 2014, CMP has secured key contracts in eHealth platforms with leading provider in South Korea, Shanghai (China), Hong Kong and Taiwan. The total population of these countries is 1.43 billions (1/5 of world population). Though it might take another one to two years for the revenue, early mover usually reap rewards, in terms of higher profit margin, establishment of local partnership/infrastructure and brand reputation.

The foreseeable future from my perspective:
(a) offshoring process should confidently increase the margin by at least 2%.
(b) Sale growth probably will slow a bit, given the general economic condition in US and China slows. But, medical/health sector should be less impacted by economic downturns.
(c) Revenue will continue to increase, as AUD stays low.
(d) eHealth is uncertain up to this stage, but should we see any solid commercialization, CMP investment in the area should pay off.