China's Dehaier Medical continues its turnaround as revenue falls

By Varun Saxena

Dehaier Medical Systems' turnaround hasn't paid off yet.

The Chinese medical device maker spent 2013 reorienting its business towards government procurement and sleep respiratory devices, and away from the increasingly competitive medical equipment business.

Amid the refocus, annual revenue declined 21.11% to $16.86 million and net income fell to $2 million in 2013 from $3.22 million during 2012. A Dehaier ($DHRM) representative blamed the fall in revenue on an "increasingly challenging market and new entrants of the industry."

Prong one of the company's new approach is government procurement, and it did win a number of contracts in 2013, including three deals in the second half of the year worth about $2.1 million, combined, to supply medical equipment to rural areas of China.

In 2014, the company said it will represent Johnson & Johnson in government procurement bids, according to its earnings transcript. In addition, the company said the 2013 transition to a new government under Premier Li Keiqiang pushed some projects into 2014, meaning revenues from the segment could bump up this year.

Prong two is an emphasis on the sleep respiratory market, which accounted for 27.5% of revenues, according to the transcript. Dehaier sells software that enables hospitals to view its patients' sleep data, and in January the company received Chinese regulatory approval for its DHR998 Sleep Diagnostic Device.

Still, the company hasn't made much progress financially. It announced similar intentions to make inroads into government procurement last year, but cash on hand fell to $2.6 million by the end of 2013, down from $3.5 million. A recent $6.1 million fundraise should help the company going forward.

The strategy offers foreign device makers a chance to crack a growing market that isn't always friendly to outsiders, but the company announced only one government procurement contract to supply an outsider's device, being Phillips Color Doppler Ultrasound machines. However, it did enter into an exclusive arrangement with Heyer Medical AG to become its post-sales servicing agent.

Finally, the company touted its increased profit margin as a sign of a successful reorientation, but the increase was negligible, and margins remained near 38% in 2013.

Shortly after market opening, the company shares rose by 6.57% to $7.46.

- here's the release

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