China New Energy Group Co (OTCMKTS: CNER) is a reverse merger company that is executing on its rollup strategy of opening diabetes clinics in strategic locations resulting in quick sustainable cash flow. This is a real company with 2 clinics and revenue coming in the door right now. The only worldwide pandemic that can challenge the COVID pandemic (771 million) in number is the diabetes pandemic that has touched 539 million according to Health Data. The diabetes pandemic is a serious problem because diabetics without a clinic to go to risk amputation and other serious life threatening complications. Many investors don’t realize it but chances are there is a diabetes clinic in your neighborhood. The opportunity is so big google it and a number of search results will come up. CNER’s clinics have a reimbursable business that all insurance providers pay for, and are in the right spot at the right time, and have a scalable business model.
Global Vision
The company has a plan to acquire and build diabetes care clinics in areas of high need. The clinics would be at maximum capacity in as little as 90 days. The focus of their therapy revolves around the fully reimbursable medical procedure called Physiological Insulin Resensitization (PIR). This procedure has a patented approach whereby insulin is administered as a hormone instead of as a drug. Insulin used as a drug controls the body's glucose levels. Insulin used in PIR is trying to reverse the metabolic failure which is the root cause of diabetes. While PIR is the novel treatment, wound care, neuropathy, and infusion therapies are part of the service offering. These clinics will typically have up to 20 intravenous (IV) chairs designed to treat diabetics with PIR and in some cases wound therapy. The company currently has 2 operational clinics in Arizona waiting to close. Each clinic is expected to do about $5 million in revenue with the IV chairs. This means their FY24 revenues off just these initial clinics is looking at $10.44 million with 30% EBITDA. Their plan to scale involves acquiring or building 32 additional clinics in Arizona and an additional 20 in Hawaii. If successful, they could generate over $500 million in revenues assuming they can get just 2.5% of the Total Available Market (TAM) in those geographic regions. Positive cash flow from each clinic is expected within 150 days. What is driving this quick entry into the marketplace are strategic technological initiatives that maximize the efficiency of the clinics.
Technology Integration
The company has a plan to improve the operational efficiencies of the traditional diabetes clinic by creating a seamless digital experience in terms of healthcare data, monitoring, and recommended treatment care. It boils down to personalized care which results in better outcomes and in many ways enhances customer loyalty and drives adoption of ancillary services that ultimately expand the margin. The Company also plans to integrate AI and quantum biosensors into the clinic.
Multiple Expansion
Diabetes clinics have for the most part been commoditized and trade at a small multiple of revenue. Typically diabetes clinics go for 1.2X revenue. Once these acquisitions are rolled up into a public vehicle they undergo multiple expansion, but it doesn't stop there because these diabetes clinics are upgraded with technology that incorporates the digital patient and the digital clinician. Eventually it will be transformed into a precision medicine clinic which could get valuations 20X their revenues.
Large & Growing Market
Investors may not realize it but over 10% of the world population has diabetes. It’s a massive epidemic with estimated annual costs topping $1 trillion. In the USA over 100 million have it and it's costing this country $412.9 billion. One of the target markets is Arizona, and this state has 800,000 with diabetes, and 1.6 million are pre-diabetic. The cost of diabetes in this one state is $6.8 billion annually. Hawaii has 133,000 people with diabetes and 400,000 are classified as pre-diabetic. These markets are the low hanging fruit for CNER.
Stock Structure
Up until this point, what's not to like about the company and its plan. Some may take issue that there are 7.3 billion shares in the O/S, but almost all these shares were issued in conjunction with the reverse merger. The essence of this analysis is actually a low float stock with a maximum of around 60 million shares that are tradeable. While the low average daily volume may give some pause to invest, the positive is the stock is quite thin and could move up quite rapidly. This company has a lot of “Zombie Stock” which are shares that will never come into the market. It's important for investors to realize that this stock isn't overhang that is going to get dumped on them. Furthermore, new investors put in almost $700K at the existing market cap. This long term investor and his money essentially put a strong bid under the stock.
Investment Summary
CNER aka Thrive is a real operating business with a bulletproof business plan run by a number of experienced health care professionals. They target patients in the second largest ongoing pandemic called diabetes. They have a scalable plan with realistic goals. The management team has decades of experience and knows what they are doing. They are leveraging the value of the public markets along with technology to create a clinic with a greater multiple than what they purchased by instituting common sense improvements that drop to the bottom line. The share structure might look scary but the shares have almost no chance of making it into the float due to the affiliate status, the financier lockup, or the 100 million in zombie stock. The tight float will ultimately create volatility to the up or downside however the downside risk is muted thanks to a long term investor and a scarcity of shares. The company is seeing an uptick in volume, has some good press flow, and could be a good long term hold for investors that want a slice of the 2nd largest pandemic market in the world.
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. A guest contributor wrote this article and solely reflects his opinions.
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