Yompkee: Thanks for the link.
I agree with being conservative when it comes to future projections. I rarely have a problem with underprojecting by 20 to 40% to protect ourselves against unforeseen pitfalls. But we donot want to be overly conservative and possibly underestimate revenues by up to 100% (which seems to be the case here) and possibly miss a good investment opportunity based on the numbers the model yields.
a) For all his projections Nevader uses a selling price of $733/kg based on Company's estimate made about a year ago when they projected that Phase 1 of the new 150mt plant will bring an additional total annual revenue of 110MM, i.e. 110/150=733/kg.
b) based on some exchange with Throwerw and my own DD, I am more inclined to think that price is too low b/c the company has raised the bulk selling prices 60 to 70%+ since. The FY2010 10K reports bulk sales of 21.8 MM but no exact production amount. Taking the old plant capacity of 12mt (metric tons) and adding the 5 mt produced in March by the new plant, one can surmise that max FY2010 bulk production was in the 12mt to 17mt range since some of this production was for retail which accounted for about 3/4 of the total revenue. Selling price range thus estimated from report = 21.8/12= 1817/kg to 21.8/17= 1283/kg, mid price= 1550/kg .
Looking at the composition of their bulk customers over the past 12 months I don't see a major shift in customer mix or demand that would justify a strong shift toward the "easier" stuff (simple strains of additives that can be made in one workshift and cost less) vs. the "harder" stuff that may take 21 days to produce and costs much more. The vast majority of the now 39 bulk customers comes from the same high-end industries as reported at the end of the Q1/10 (16 customers) and Q2/10 (20 customers), namely mostly diary products, food additives and pharmaceuticals. Only in the last few months (Mar-Jun/10) have 4 new customers been added from the animal feed industry that may arguably require the simpler probiotics strains. The largest market is probably for yoghurt and yoghurt drinks, an increasingly important and competitive market, and I can't imagine they want much cheaper additives now as compared to a year ago.
This discussion is not of purely academic interest since such a difference in selling price has huge effects on eps estimates ($1 to $1.50 difference for FY2011 and much more for the following years). So I'll wait to get more accurate info on bulk selling prices from the Company before deciding which # to use for FY2011/2012. I have emailed IR about this (both the CFO and the bulk-sales contact person Luke Tang) but they are now in a "black-out period" and cannot answer any questions about earnings... :((
from Q2/FY10 report:
As at September 30, 2009, we have entered into contracts with 20 customers for the food additives business. In this regard, we have created a number of formulations for testing by many potential future customers. We have established an array of business relationships with commercial customers located in Beijing, Qinghai, Shanghai cities, Jiangsu, Jiangxi, Shaanxi, Shandong and Zhejiang provinces. These growing companies are among the leaders in the baked foods, dairy and pharmaceutical industries. The Company’s existing manufacturing facility, with current annual manufacturing capacity of 12 metric tons of probiotics for use as bulk additives and capsules, will supply the initial orders for these customers. The need to create a large number of new products for potential customers is pushing the capacity of our current production facility. With the delay in the commissioning of the new plant from our earlier projections, we have been carefully managing the use of our production capacity and selectively increasing the price of our products to make sure that we strike a balance between achieving current and future sales.
From the recent update of July 7:
China-Biotics gained more bulk customers during the quarter ended at June 30, 2010 and the total number of bulk customers increased to 39 by the end of June. Among the 39 customers, 4 are animal feed producers and the remaining are dairy enterprises.
