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It would be helpful if you could provide more detail. What are these critieria that are missing?
Just looking over the product list here.
I have come to the conclusion that this is another of the long list of Chinese snake oil companies.
These are the kind of neanderthal probiotics you saw being sold in America 20-25 years ago. Totally useless, and a waste of money IMHO. There are several criteria a probiotic supplement must meet to be effective, these meet none of them.
Options time!
January 2012's looking incredibly cheap to me.
Comparison of Nevaders's revised eps projections with Wefe's projections( based on Wefe's Nov blog "Updated CHBT spreadsheet):
Nevader just revised his eps forecasts for the next 2-3 years downward to account for a slower rampup of bulk production (3 years for Phase 1, 2.5 years for Phase 2 of Qingpu based on his exchanges with CEO, production start at Phase 2 pushed back to Sep'11 vs. Mar'11 originally) and lower ASP ramps. Here is a comparison the original forecasts:
Wefe's projected eps for:
FY'11= 1.72, FY'12= 2.55, FY'13= 3.47
Nevader's projected eps for:
FY'11= 2.07, FY'12= 4.76, FY'13= 9.83, FY'14= 15.76
Comparison of the revised forecasts (as of Dec 20'10):
Wefe's projected eps for:
FY'11= 1.72, FY'12= 2.55, FY'13= 3.47
Nevader's projected eps for:
FY'11= 1.87, FY'12= 3.23, FY'13= 5.07*
* the FY'13 forecast is not given in Nevader's article but in his reply to Bogus07's comment. Not sure if this includes some of Yangling's production as in his original model.
Bottomline: we can fairly safely assume that eps for FY'11 will be about $2, for FY'12 eps will be about $3 (range 2.55-3.23 b/w the 2 forecasts with possible upside as noted by Nevader. For FY'13 there is a larger variance in eps ($3.5 to $5+) although I personally am now more inclined towards Nevader's forecast of $5 since his model takes into account more recent developments (like Pope's note redemption, the expansion of retail into the pan-Beijing market and addition of 14 new bulk customers) which preceded Wefe's model.
http://seekingalpha.com/article/242696-china-biotics-my-top-stock-pick-for-2011
http://wefe5433.blogspot.com/
I totally disagree. Nevader wanted to wait until Pope's note has been redeemed and probably also to see the market's reaction to the recent news (addition of 14 bulk customers and major retail expansion into the pan-Beijing market) to come out with his latest piece. Which is a smart thing to do. (Btw, same compliment here goes to a savvy Mgmt who held back all the postive news flow until aftyer Pope's note redemption). Why keep cranking out one article after another with little insight and new info which is usually what you see from the impatient "pump-and-dump" crowd? You think a pump-and-dump guy would take all that time to do such meticulous research and even spend a whole week during the Investor Day to get to the bottom of things as Nevader did ?
It was clear that after Q2 subpar results (no bulk customer added, lower selling prices in both retail bulk, no upped guidance...) Nevader had to drastically revise his model. Such a process takes awfully much DD and time. His previous models were based on more optimistic expectations such as a swifter rampup of bulk production (2 years vs 3 years, earlier production start of Qingpu Phase 2, higher selling prices...) and thus resulted in much higher sales and eps results than the one he just published. I am really glad that Nevader took the time to carefully revise his projections to down-to-earth numbers that we all can use for the next 2 years. Great job, Jason.
Jason's reply to a similar inquiry on Yahoo:
I am back. I just wanted to see the convertible debt repaid first. I had a couple funds contact me asking not to publish until after the convertible debt was repaid. While it wasn't fun seeing the stock in the $11 range leading up to the debt repayment, it was worth it so as not to push the price over the $14.16 break-even. Now that this milestone is behind us, we have clear skies ahead!
Nevader also said this on Yahoo regarding the timing of his article.
http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_C/threadview?m=te&bn=75878&tid=10904&mid=10904&tof=1&frt=1#10904
Check out the comments section of his SA article below. Also, the last time he wrote about CHBT, the stock was $11. Perhaps you should contact him directly if you think his intentions are not what they seem.
Since attending the Investor Day on 9/20/10, I partnered with 3 other investors, one from a $6+ billion fund, one from a small fund, and a high net worth investor, who is retired hedge fund manager with 25 years of experience in Asia. We spent 3 months of doing intense due diligence to find everything there is to know about the industry and China-Biotics. Collectively, we now own over 20% of the float.
I have decided to wait until after all of my additional on the ground due diligence was complete and until the convertible debt was repaid to write another article on CHBT. It seems like the Company wanted to wait on sharing good news until the convertible debt was repaid as well. That strategy has paid off handsomely now that we have 10% fewer diluted shares.
If any short sellers want to compare notes with me and my group of longs on all of the exhaustive due diligence that proves that CHBT is the real deal, feel free to contact me. You will be quick to reverse your position and go long. Just hit the Send Message button below my profile picture."
no i do not mean you no way.
Total: If you mean me, I have followed this company for a while and all my posts are based on deep DD and conviction, not a pump and dump agenda. This is a stock I want to retire on, as I have said on different boards. My bet is I'll still be invested here long after you are gone. Just go back and check all my posts, you'll see I have posted on NEP, CCME, CNAM, UTA... for much longer than you think and I am still in those. If you want to stay with CHBT longer, you are certainly welcome to do so.
If you want to know a Spider, check his # posts,...the bigger the mouth, the more likely the spider is a guy who wants a quick "pop" to unload his shares.....i.e. if he is promoting his latest "move," that means he wants to dump to make his quick 'pop. Watch the boards and the self admitted traders...they have their lives and mortgages based on being spiders.
Beware the Spiders who run these IHUB boards and stocks...After a year of listening, most of the guys with several thousand posts have an agenda...like professional card players.....my advice is to get half a dozen ones and not listen to these guys.
think I am spot on with this one.
I see jason Nevader has NOW published his latest position piece. The guy has an agenda, so for retail people like me, beware, unless IHUB is just a way for the in crowd to scam new money. The guy wrote those huge pieces several months ago, and then the stock tanked, after earnings. He kept his mouth and pen shut. NOW, that the stock has rebounded, he is encouraging everybody to buy, based on his new "piece." NOW he says buy, not when the stock was 11 bucks. Trust me, he gets another point and he will be dumping like all get out.
CHBT: My Top Stock Pick for 2011
Nevader has posted a great new article on CHBT that is a must read. I am long CHBT. Glad to see a very informative financial model. The next 2 quarters should shape up nicely.
http://seekingalpha.com/article/242696-china-biotics-my-top-stock-pick-for-2011
Roth downgrade: this interesting post by GumSailay on the CCME board makes me understand better why (maybe!) Roth Cap downgraded CHBT to a SP of 8 right after the Investor day in Sep knowing too well the LT potential of this stock whose lead underwriter they were when CHBT went public. Lots of conflicting interests here, it's all about how to make the most money out of a certain situation imo. Loyalty and reputation donot seem to count much these days on Wall Street ??
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=57885160
CHBT expands distribution network into Pan-Beijing area with 4 new distributors and 30 new points of sale:
SHANGHAI, Dec. 17, 2010 /PRNewswire-Asia-FirstCall/ -- China-Biotics, Inc. ("China-Biotics" or "the Company"), (Nasdaq:CHBT - News) the leading developer, manufacturer and distributor of probiotics products in China, today announced that it has expanded its distribution network into the Pan-Beijing area with the selection of four new distributors to sell the Company's retail products.
These local distributors will sell the Company's retail probiotics products through established distribution networks including malls, supermarkets and functional food stores adding approximately 30 new points of sale. These agreements represent the Company's first market entry into the pan-Beijing area.
Mr. Jinan Song, Chairman and CEO of China-Biotics, commented, "We are very excited about our new alliances with these distributors as they enable us to enter the highly desirable pan-Beijing area, which together with the Hebei and Shandong provinces and the municipalities of Beijing and Tianjin, command among the highest disposable income levels in China with rising nutritional food consumption. Although the signing of these distribution agreements signals the beginning of our expansion into this new geographic region, we have already started conducting studies on market potential for other regions within China."
"Rapidly growing sales of probiotics cultured yogurt products by dairy companies throughout China are paving the way for increased awareness of the benefit of probiotics. We are confident that our retail products will be well received by the health conscious middleclass consumers in this region. Our goal remains consistent: building a broader retail and bulk customer base with regular consumption and recurring revenues to maximize our long-term shareholder value," Mr. Song concluded.
Maxim's Group reiterates Buy and Price Target of $18:
What’s new? This morning, CHBT announced an addition of 14 new customers to its bulk probiotics operation. In addition, the company recently retired $25MM senior convertible promissory notes issued to Pope Investments II LLC with a total redemption payment of $29.7MM. The strike price for the convert was $12 with the addition of some unpaid interests; the actual strike price would have been $14.16.
Expansion of bulk probiotics operation is the key driver for CHBT shareholders. With the addition of 14 new customers, the total bulk probiotics customers increased to 51. All new customers are of small to medium size; and among them, one from an animal feed manufacturer, eight from the dairy industry; and five from functional food, nutritional product or pharmaceutical producers. Given that one of our major investment themes is execution regarding bulk probiotics sales expansion going forward, today’s development is a very encouraging step in that direction.
F2011 total revenue projection remains attainable. After the company recently closed the majority of its retail stores and outlets, we believe that distributor retail sales has accounted for 95+% of the total retail probiotic revenue. With seasonally heavy retail probiotics sales in 4Q and 1Q of the year due to holiday and Chinese New Year gift giving, we remain confident in our projected total F2011 sales of approx. $115MM (bulk plus retail).
Retirement of the convertible notes is a positive for CHBT shareholders. The retirement of the convertible notes is overall, positive, in our opinion, for current CHBT shareholders as they no longer face potential share dilution. Despite that the $30MM cash being valuable for the corporate development; we believe the company would still have $130+MM (pro forma) – more than sufficient for its planned development efforts, including the second 150-ton facility expansion and the new probiotics-based animal feed facility in Yangling, in our opinion. Given that the actual strike price would be $14.16, it is not surprising that Pope Investments would choose redemption instead of conversion of the notes.
Adjustments of financial model. Based on recent developments, we are maintaining projected revenue (approx. $115MM and $164MM) and increasing EPS to $1.77 and $2.45, from $1.74 and $2.37, for F2011 and F2012, respectively.
Valuation remains favorable for CHBT. CHBT is a premium Chinese probiotics company at the path of a major expansion in the bulk probiotics market, in our opinion, and we expect CHBT shares to appreciate going forward. As such, we reiterate our Buy rating and 12-month target price of $18 for high-risk-tolerant, long-term-oriented investors.
A Yahoo poster points out to another growth avenue, through its big customers' M&A. If Bright Foods acquires GNC, I may get to buy CHBT's supplements right here where I live. How about Yoplait?
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_C/threadview?m=tm&bn=75878&tid=10677&mid=10690&tof=1&rt=2&frt=2&off=1
CHBT signed 14 new bulk customers: they had 37 bulk customers by the end of last Q, so now it is 51 total. So Nevader's model (see link below) that calls for 50 bulk customers at the end of this Q is good so far. Only one of the new 14 new customers is animal feed manufacturer, this should bode well for bulk margin. Also the shift to distributor-run retail (that probably accounts for 95%+ of their retail biz now imo) should benefit much their overall margin compared to say 1/2 year ago.
China-Biotics, Inc. ("China-Biotics" or "the Company"), (Nasdaq:CHBT - News) the leading developer, manufacturer and distributor of probiotics products in China, today announced that it has signed 14 new customers for its bulk additives probiotics products.
Among the 14 small to medium sized new customers, one is animal feed manufacturer, five are functional food, nutritional product and pharmaceutical producers, and the remaining eight are dairy companies. As of the end of November, the total bulk customers increased to 51. Approximately 60% of newly signed customers are located in tier one cities such as Beijing, Tianjin etc.
Mr. Jinan Song, Chairman and CEO of China-Biotics, commented, "We believe our success in consistently winning new bulk businesses reflects the proven value of our unique solution that combines our superior proprietary products with value-added customized production service. Following nine-month of mass production and equipment fine-tuning, we are very confident that the safety and stability of our bulk additive products are now becoming our winning ticket to expand market share in China."
http://seekingalpha.com/article/225301-china-biotics-shifts-focus-to-fast-growing-chinese-food-ingredients-industry
I think $13.80 is the hurdle we need to clear this week? Any close over that is going to send the shorts running. After we clear that mark we'll be smooth sailing to a new 52 week high ($19.74)!
Mike Kosa, the #1 amateur stock picker on Marketocracy has CHBT on his Top 5 list (although it's much smaller than his CCME position):
TGF 5 Biggest Holdings (on 2010-11-11) Symbol Name Price Shares Value % Fund
CCME China MediaExpress Holdings, Inc. 19.73 175,927 $3,471,057 21.33%
UTA UNIVERSAL TRAVEL GROUP 6.11 321,426 $1,963,945 12.07%
SUTR Sutor Techonology Group Ltd 2.01 410,000 $824,100 5.06%
GY GENCORP 4.89 157,000 $767,730 4.72%
CHBT China-Biotics Incorporated 12.59 56,037 $705,506 4.34%
Total $7,732,338 47.52%
Here is more info about him (from CGS board)fyi:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=57648930
CHBT vs. CCME- Comparison of Top Institutional Ownership
Looking at institutional ownership can give us interesting clues as to how professional money managers view certain stocks, esp. in our space. I have compiled in the following a side-by-side view of the top 10 Institutional Owners of two widely followed CGS stocks, CHBT and CCME, in terms of $ investment value as of Dec 10, 2010 based on info provided by Nasdaq.com as of Sep 30, 2010 (see links below). My Top 10 selection is somewhat arbitrary as it shows a mix of CHBT's Top 8 together with CCME's Top 5 holdings to give us an idea where the biggest institutional money comes from for these 2 stocks although, interestingly, the names are almost the same for both stocks with the exception of one (Ardsley Adv, CCME's Top 1 holder).
As of Sep 30, 2010, CHBT has 23.3% institutional ownership with 57 holders vs. CCME with 11.5% and 50 holders.
Holding Value in $MM as of Dec.10, 2010
Fund ................ CHBT CCME
WELLINGTON MANAGEMENT 19.9 -
TRELLUS MANAGEMENT... 5.56 0.3
STRAUS CAPITAL MANAG. 5.35 3.8
D. E. SHAW & CO...... 4.72 9.2
WALL STREET ASSOCIAT. 4.49 -
VANGUARD GROUP....... 4.15 3.5
RIVERSIDE ADVISORS... 3.30 3.3
GOLDMAN SACHS GROUP.. 3.14 4.1
MORGAN STANLEY....... 1.39 1.75
ARDSLEY ADVISORS PAR. ---- 10.1
CHBT has the highest % short interest with 3.76+M shares as of Nov 30, a decrease of 5.63% compared to period Nov 15:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=57646519
CHBT: China-Biotics Announces Redemption of $25 million in Senior Convertible Notes
SHANGHAI, Dec. 9, 2010 /PRNewswire-Asia-FirstCall/ -- China-Biotics, Inc. ("China-Biotics" or "the Company"), (Nasdaq:CHBT - News) the leading developer, manufacturer and distributor of probiotics products in China, today announced that it has redeemed $25 million in outstanding 4 percent senior convertible promissory notes for cash two days before the December 11, 2010 maturity date.
The $1,000 notes were originally issued on December 11, 2007. The redemption price is 100 percent of the principal amount per convertible note, plus accrued and unpaid interest as of the redemption date of December 11, 2010. The total redemption cost is $25 million in convertible note principal, plus approximately $4.68 million in accrued and unpaid interest. The convertible note principal is equivalent to 2.08 million common shares. With this redemption, the total diluted share count for computation of EPS is now reduced to 22.3 million shares. As of September 30, 2010, cash and cash equivalents were $158.8 million.
Mr. Jinan Song, Chairman and CEO of China-Biotics, commented, "We are very pleased to retire our only interest-bearing debt instrument. Redemption of these convertible notes enhances shareholder value through substantially strengthening our balance sheet and creating immediate accretion of our earnings per share. With our proven track record to consistently generate free cash-flow, we plan to continue to leverage our strong balance sheet to propel rapid sales growth and fund strategic expansion in production going forward. We believe this key milestone enables us to upgrade our shareholder base to higher quality long-term investors."
http://finance.yahoo.com/news/ChinaBiotics-Announces-prnews-3012387867.html?x=0&.v=1
lmao....yes great day!
uhh.. actually 3 days from today since conversion date is Dec 11. I think todays's strength may be related to this as everybody hopes Pope will cash out. In either case the share structure will from now on be much simpler with the convertible note gone.
Strong Buy on China-Biotics NASDAQ:CHBT
China-Biotics, Inc. NASDAQ:CHBT 2011 Price target $20 Analysis by Chutinush Taksinapinunt ,Corporate Account Executive, Heffernan Capital Management
China-Biotics, Inc. NASDAQ:CHBT (”China-Biotics” or “the Company”), a leading manufacturer of biotechnology products and supplements, engages in the research, development, marketing and distribution of probiotics dietary supplements in China.
Through its wholly owned subsidiaries, Shanghai Shining Biotechnology Co., Ltd. and Growing Bioengineering (Shanghai) Co. Ltd., the Company develops and produces a proprietary product portfolio.
Currently, its retail products are sold over the counter, mainly through large distributors, to pharmacies and supermarkets in Shanghai and Jiangsu and Zhejiang provinces.
The Company China-Biotics, Inc. NASDAQ:CHBT also sells bulk products to institutional customers such as dairy and animal feed producers as well as pharmaceutical companies. In February 2010, China-Biotics began its commercial production in China’s largest probiotics production facility to meet growing demand in China.
China-Biotics, Inc. NASDAQ:CHBT is one of just a few Chinese food companies that have received four major international certifications — including HACCP, a U.S. FDA designation required for all food imports into the U.S. And CHBT’s probiotics have a survival rate of 70% at room temperature two years after manufacture — twice the requirement for probiotic products sold in Europe, it says.
Because of its superior fermentation technology, the company’s products also have a much higher active ingredient concentration than most domestic competitors.
In fact, many of its domestic competitors use outdated technology to manufacture probiotics, which tend to be inferior and have a shorter shelf life.
China-Biotics, Inc. NASDAQ:CHBT
Really...why 3 days....I thought it was the end of the year?
Just 3 more days until Pope's converting or cashing out. If they cash out, they get paid approx $14.3/sh I think, that's about $29.7MM cash. At current SP below $12, I think they will cash out. If they do, that will reduce the O/S by 2.08MM shares instantly. If Company is also buying back shares this Q, we may even hope to see the O/S reduced by 2.5MM shares or so by the end of Dec (which is Q3). Instant lift of the eps by same %. Also, no more messy non-GAAP adj of the convertible shares from here on. Isn't that nice?
If Pope still likes this co., they may turn around and buy shares on the open market. With $30MM they can get 2.5MM shares at $12/sh which would make them a 10%+ owner. That would be a huge boon for the stock. Equivalent to a buyback of 2.5MM shares, plus another 2.5MM shares in strong hands. That's like 25% of the float locked up. Can you imagine what a squeeze that would mean?
How to protect your shares from being loaned to shorts: this has been posted on several boards before but considering the high short interest in this stock (about 4MM), longs can help trigger a major short squeeze here with any positive event (be it of fundamental or tehcnical nature) by doing the right thing with their shares: keep them in a cash account and place a high-limit GTC order. Here are links to some recent related posts on the CCME board:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=57384371
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=57395197
Cool, that website is the online shopping mall that replaces the cost-ineffective brick-and-mortar retail outlets. No need now to go anywhere to buy your probiotics supplements. Even shipping is free for domestic orders, I heard. Just in time for the busy Chinese-New-Year shopping season. I think that alone is reason enough for a nice rebound as the issue of shrinking retail outlets has been exploited by shorts and kinda weighed down the stock in past 2-3 months. Glad that website is up and running.
New CHBT retail website launched too...weeeeeeeeeeee!
http://translate.google.com/translate?hl=en&sl=zh-CN&u=http://store.ule.tom.com/store/243.html&ei=nJP1TLvtIMH_lgfkv6HNBQ&sa=X&oi=translate&ct=result&resnum=1&ved=0CBkQ7gEwAA&prev=/search%3Fq%3Dhttp://store.ule.tom.com/store/243.html%26hl%3Den%26client%3Dfirefox-a%26hs%3Ds7a%26rls%3Dorg.mozilla:en-US:official%26prmd%3Div
New CHBT Bulk website launched weeeeeee!
http://www.growingbt.com/en/Products.asp
I was think along similar lines, selling on the scare. But Pope selling does concern me, more so than Fidelity, since Pope must know the business very well.
However both could buy back when the company shows production ramping.
Wellington still own a large holding and FWIW D E Shaw at number 4 in the list featured in ‘Stock Market Wizards’ book, secretive and very successful multi billion $ fund over a number of years – though this just one of many positions for them.
The report you probably referred to is for the third quarter report period, so all institutional transactions reported are "as of" 09/30/2010 although the report came out on Nov 15 since institutions have 45 days to file changes in their hodlings:
http://www.nasdaq.com/asp/holdings.asp?symbol=CHBT&selected=CHBT&FormType=Institutional
It looks like for this report period there was a net decrease of about 2m institutional shares of which Pope was indeed the biggest seller with 1.67m shares sold and FMR sold about 1m shares. On the other hand, 20 inst. added to their position in that period. I have no insight in the motives of each seller except for the guess that it was mostly the "sell first ask later" knee-jerk reaction to the massive short attack that was carried out b/w late Aug and the first half of Sep. Note also that many fund managers may have felt the need for some "window dressing" as Sep 30 marks the end of their Q3 when their portfolio holdings are disclosed to shareholders.
If I remember correctly, the Citron.com and CCA hit pieces came out b/w Aug26 to the first week of Sep, while Investor Day was held on Sep 20 and effectively refuted many of the attack points but probably too late for the massive selling that had occurred mostly in the days and weeks immediately following the attack. It would be interesting to see the inst. holdings in the current report period that won't come out until Feb 15 imo.
Many thanks for the reply Viking, some helpful insight into the company there.
One other question I have is why have Fidelity and Pope sold most of their shares? Presumably Pope know the company very well since they stumped up with the convertible loan, what’s your take on their possible motives for wanting to sell out?
Re-post but a great read...
China-Biotics: Ten Catalysts For a Higher Stock Price
We all know the majority of investors like to follow the herd, and since the shorts sellers got out the cattle prod and told the herd it was time to sell, the cattle stampeded the last few days. I am not going to make any assumptions about my audience, but I would hope the average reader of Seeking Alpha, is well, seeking alpha. Yet I acknowledge that most investors would rather crowd into a cozy trade at a high multiple than buy a great Chinese domestic consumption high margin, high return on capital, growth business with a ton of cash trading at only 2.5x current year earnings ex-cash. We all know to create alpha you have to be contrarian rather than a lemming, so for those of you with the stomach to handle some volatility, I will explain why the shorts have won the latest battle but the longs will win the war, and why China-Biotics (the "Company") could be one of the best investment opportunities in the market.
In order to make my case, I’m going to first debunk the arguments of the short sellers, then tell you why CHBT is not going out of business, and finally I’ll show you ten catalysts that could drive the stock price higher in the next few months.
Short Selling Arguments Debunked
1. China-Biotics is a fraud because the SAIC numbers for 2007and 2008 do not match the SEC filings. The SAIC numbers show a Company with almost no cash and $500k of annual revenue.
Counterpoint: Chinese companies must file with the SAIC each year to renew their business license. As we have been finding out, many Chinese companies do not report proper numbers to the SAIC. The reason for this is because the SAIC numbers go into the public domain in China, unlike the numbers filed with the State Administration of Taxation, which remain confidential. China’s entrepreneurs typically do not want their numbers public for several reasons. First, they do not want their competitors, suppliers and customers to know their numbers if they can prevent it. Second, they do not want to be hit up for favors and bribes from officials and others who try to get money from the rich. Everyone knows in China it can be dangerous to show your wealth. Even though their financial statements may be published in the USA with the SEC, most Chinese will not know there is a listed foreign Company trading under a different name in the USA and will not speak English well enough to read it.
2. Citron research could not find the Company operated retail outlets on Baidu and what the Company had listed as retail outlets appeared in some cases to be shop-in-shops rather than actual independent four wall retail “boxes.”
Counterpoint: Who cares? Retail sales through the Company’s own retail outlets, whether these are shop-in-shops or four wall retail stores are only 8% of total sales. Shop-in-shops are uncommon in the US, but actually are very common in large retail chains in China. The Company has already indicated that it has decided to scale back its own retail outlets in favor of selling through distributors into the retail channel. This is because it is more efficient to manage distributor relationships rather than a network of retail outlets, and the Company also makes higher margins on distributor sales.
How Do You Kill the Company?
The goal of the short smear is to make you think somehow the Company is going to be worthless, so you better sell now to get something. Bruce Berkowitz has described that at Fairholme Funds before making an investment they put it through a stress test where they try to “kill the Company.” The only way a Company goes to zero is if it runs out of money and goes bankrupt. So how do you make the argument to kill China-Biotics? It’s really hard. The Company had net cash of $130 million as of the end of June. Operating cash flow for the fiscal year ended March 31, 2010 was $28.2 million. This year operating cash flow will be even higher, conservatively in the $40-$45 million range. I estimate capital expenditures this year of $20 million to finish Phase II of the new plant and expand the old plant. Cash will continue to grow. As far as I can tell, you can't kill the Company. If you're a long term buyer of value and can handle the volatility, you are in a great position. At the closing price of $10.40 from Wednesday, the enterprise value is under $100 million. What a deal.
Ten Catalysts to Drive the Valuation Higher
Let me give a list of many potential catalysts that could drive the share price higher. I’m not saying they will all happen, but some will, and ultimately they will be the reason why the shorts will lose the war and probably a lot of money, while the longs make a killing.
1. The Company will report strong growth in future quarters as it continues to ramp up production at its new bulk facility.
2. The investor day on September 20th will be impressive. How do I know? Because I visited the Company last year in November and saw their new facility. Investors will see a modern factory full of massive silver tanks producing bacteria and clean rooms for finished products. The scale and quality will blow people away. Investors will quickly forget about all the funny things the shorts wrote on the internet and decide they want to own this business on the cheap.
3. The Company will announce that is has appointed a big 4 auditor for FY2011. This will convince investors that the Company has nothing to hide, since the new auditor will by default have to evaluate the prior year financial statements.
4. The Company will amend its SAIC filings.
5. The Company will buy back shares thereby increasing EPS and increasing the risk of a short squeeze.
6. The Company will start paying a dividend. Of the $159.8 million in cash, $75 million is offshore held in USD and $85 million is in China in RMB. Foreign owned companies in China can pay dividends out of retained earnings subject to only a 5% withholding tax. CHBT has $84.3 million of retained earnings as of June 30th, 2010. A lot of dividends could be paid.
7. After receiving a dividend Mr. Song, the CEO, will use the money to buy more shares.
8. Management will get fed up with the hassle of being public and dealing with short sellers and decide to go private. Surely there will be firms ready to invest. KKR, Carlyle and Sequoia all made dairy investments in China in 2009 and in July Blackstone invested in an animal vaccine manufacturer. All investments were in publicly traded companies.
9. Management will decide to move its listing to an exchange like Hong Kong where it will get more appreciation. Many Chinese companies listed in Singapore have recently done the same and have seen their valuations rocket.
10. The short trade is very crowded. I called Goldman Sachs and there were zero shares available to borrow and the cost of borrowing was 20%. As of August 13th there were 3.56m shares short equal to 32.0% of the free float, but actually given the number of core funds holding positions, the percentage of shares shorted is much higher. If any of the above 9 catalysts occur, they will create a short squeeze which will drive the price higher.
Conclusion
The short campaign has created an excellent investment opportunity for long investors. The short arguments are bunk, the Company is not going out of business, and multiple catalysts will appear that will allow you to lock in solid gains. Ignore the message boards and step up to the plate.
Heffernan Cpaital Management issues CHBT a Strong Buy with a $20 target:
http://www.livetradingnews.com/strong-buy-on-china-biotics-nasdaqchbt-28605.htm
Hi Rip: First off, welcome to the board. I feel you will find many good answers to your questions in Tony Regan's thoughtful blog "More CHBT thoughts" that he wrote after results from Q2 were presented in the 10Q and the accompanying CC.
http://wefe5433.blogspot.com/
Specifically to the q why are Q2 revenues less than Q1: I was also disappointed by the flat bulk production (15 tons vs. 15 tons in Q1)and some erosion in bulk ASP (approx $645/ton vs. $665/ton qoq). During the CC, it was said that due to the early stage of production at Qingpu they still were busy in Q2 finalizing equipment testing, passing new government inspections, hiring and training personnel in preparation for the final ramp up of production. Also they were trying to consolidate the newly won bulk customer base by further improving quality standards (product stability) rather than cranking up volume at the expense of quality which is a sensible thing to do if you want to build a long term relationship. Also quarterly ASP is a function of product mix and varies from q to q depending on the orders received for the q , with ASP for animal feed products lower than those for dairy products. That's part of the reason they never gave any guidance for the quarter, be it in production volume or revenue. On the retail side, my understanding was that sales were temporarily affected by the massive shutdown of company's retail outlets in conjunction with the shift to the distributor retail model as announced in the preceeding June quarterly 10Q (i.e. months BEFORE the issue was "found" by Citron and other shorts in the Sep/Oct smear campaign). Also, the accompanying launch of the new distributor-run outlets had necessitated intensive promotions and price reductions that have temporarily afffected the retail ASP. All in all however, as pointed out in Regan's blog, Q2 rev came in line with Company's rev guidance for FY'11 with Q1 and Q2 making up about 40% of total guided rev of 122M, and Q3 + Q4 making up about 60% like in previous years. They also gave specific guidance for bulk production ramp up in Q3 (18.7 tons) and Q4 (25 tons). So we need to see here "the forest for the trees".
As to your q about mgmt quality, I think we need to see CHBT in the context of many other small-cap quality companies in China that started as small family businesses and are growing rapidly to become industry leaders in not a too distant future. The CEO, Mr Song, himself said something on the Investors Day like he's better at working hard to make this company grow quickly than at navigating Wall Street's demands. In this regard, Tony Regans has presented fairly convincing numbers on the real growth of rev, eps, cash flow... that this company has achieved over the past several years and summarized his findings pretty well with this remark:
The bottom line is that China-Biotics has demonstrated consistent growth in sales, net income, and EPS over the last several years, and I have a high degree of confidence that it will do so for the remainder of this fiscal year and next fiscal year as well. And China-Biotics has managed to do this while remaining free cash flow positive each of the last several years.
I have looked at practically every China small cap trading on the major exchanges and I am hard pressed to find another which has delivered such steady and predictable EPS growth and free cash flow as CHBT.
I can only second his opinion and think that that growth will be even more dramatic in the next quarters and years as CHBT has successfully grown its bulk additives production and distribution network, both domestically and internationally. I think the patient investor will be amply rewarded if he can look beyond a quarter or two. I may be wrong though and only time will tell.
Am doing my DD on CHBT and it looks overall a great prospect but still has to prove it can ramp up that bulk production into a meaningful revenue increase.
I have a few final questions I hope someone with more knowledge of the co can help with please.
Why are Q2 revenues less than Q1?
Q2 revs were 23.6 v’s 24.9 in Q1. In both fiscal 09 and fiscal 10 Q2 revs were higher than Q1.
In fiscal ’11, bulk revs accounted for 41% of sales in Q2 v’s 40% in Q1. Since the co says bulk run rate has increased in Q2 to 75T pa from 60T pa, why was this not reflected in increased bulk revenues as % of sales?
I believe asp’s for bulk decreased from Q1, maybe this goes some way explain it?
Then again, why did asp’s drop and is there any way of knowing if they will stabilize or fall further?
Can we expect asp’s to stay within the 650 -750$/KG range going forward?
I also am questioning why they went from 103 down to 15 retail outlets in the quarter. Although the reason seems sensible and plausible, it’s also quite a coincidence that the ‘downscaling’ has happened during the period of the short attack based around doubt about the existence of many of their retail outlets. Yes, their own retail outlets added only a small percentage to sales but the point here is honesty of management.
What is the quality of this management? The new COO seems highly qualified, what about the rest of management, can any of you longer term holders give an opinion?
http://people.forbes.com/search?ticker=CHBT
Travis Cai’s CV does not say he is GAAP qualified. Would’nt it be better if he was?
There has also been some doubt cast on BDO HK. FWIW I found this quote from their CEO which suggests that CHBT as an SEC registrant, is being audited to PCAOB standards, which effectively means it effectively has a top 5 auditor since it seems to be being audited to BDO international standards and BDO claims to be no 5 in the world based on annual turnover.
Reply from Albert Au, Chairman & CEO, BDO Limited:
BDO Limited is registered with the U.S. Public Company Accounting Oversight Board and cooperates and complies with the rules and standards of that body to the fullest extent possible, including that of inspection.
The only exception is where there is a contradiction with the laws of Hong Kong and the People's Republic of China, jurisdictions in which we and some of our clients operate. Such restrictions of course apply to all firms operating in these jurisdictions. However all BDO Limited's audits of the financial statements of our SEC registrant clients are conducted in accordance with the standards of the PCAOB.
http://seekingalpha.com/article/229517-china-biotics-a-questionable-investment?source=qp_article
I'd also rather see Pope redeem the note than convert. I don't think that would pose a big cash problem to the company. Long term it's definitely a plus for shareholders to have 2.1M shares less dilution.
HAVE A HAPPY THANKSGIVING !
Yup. Not exactly a vote of confidence in the company....
I think it is a lock that Pope will ask for cash back for their convertible note. That decision should be announced by mid December.
Anybody notice that Pope sold most of their shares last quarter?
Here's a site I use when i'm left scratching my head....really stunned we are at these levels again...
http://www.stockta.com/cgi-bin/analysis.pl?symb=CHBT&num1=13&cobrand=&mode=stock
http://www.barchart.com/cheatsheet.php?sym=CHBT
Do you see any support from a chart perspective? I've been sitting on my hands with this one because I don't see any near term catalysts. I have a medium position that I established after the initial bash, and am looking to add, but haven't seen any reason to go back in yet.
$10.45 Getting beat down pretty good....caught me off guard....
Tony Regans made an interesting point about Pope possibly converting instead of redeeming the note:
http://wefe5433.blogspot.com/
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China-Biotics, Inc. ("China-Biotics," "the Company"), a leading manufacturer of biotechnology products and supplements, engages in the research, development, marketing and distribution of probiotics dietary supplements. Through its wholly owned subsidiary, Shanghai Shining Biotechnology Co., Ltd., the Company has operations in Shanghai. Its proprietary product portfolio contains live microbial nutritional supplements under the "Shining" brand. Currently, the products are sold OTC through large distributors to pharmacies and supermarkets in Shanghai, Jiangsu, and Zhejiang. China-Biotics plans to launch 300 Shining brand retail outlets in major cities in China. Currently, China-Biotics is strategically expanding its production capacity of probiotics to meet growing demand in the bulk additive market. For more information, please visit http://www.chn-biotics.com
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