CHBT value line coverage, rated a 2 for timeliness
This week we welcome China-Biotics
to The Value Line Investment Survey. This
Shanghai-based company produces and
markets probiotic dietary supplements in
China. Probiotics are live bacteria that improve
intestinal health and digestion. The
company sells these products over the
counter through the ‘‘Shining’’ brand
name, one of the most recognizable brands
in China. China-Biotics (CHBT) also supplies
its probiotics as bulk additives to the
food industry, specifically the dairy market.
CHBT is expanding (see below) and is
endeavoring to market its proprietary
dietary probiotics to the international
markets, primarily in the U.S.
The company’s annual sales tallies are
ramping up nicely. CHBT posted revenues
of $30 million in 2006, the year it
went public, and is expected to generate a
top line of around $120 million in fiscal
2010 (ends March 31, 2011). About 60% of
sales of probiotics are to the retail sector,
and the remaining 40% are to the bulk additives
industry. The dairy market accounts
for about 70% of the bulk business,
while animal feed customers account for
the rest (30%). China-Biotics has been selling
an increasing volume of its retail product
via the Internet and steadily closing
down its bricks-and-mortar outlets. We
look for the top line to jump another 25%,
in 2011, to around $150 million.
Meantime, share earnings will likely
double to $1.60 this year. Closure of
more retail stores will certainly widen
margins due to cost cuts. Furthermore, the
growing popularity (particularly in the
United States) of consuming more organic
(natural) dietary supplements is boosting
units sold and enabling CHBT to raise its
selling prices.
This stock has a popular following,
with a float of almost 50% of shares outstanding.
Insiders, specifically the
founder, Song Jinan, owns much of the remainder.
Investors should note that the
stock moves quickly, and is more suited to
the investor with a trader’s mentality.
Earnings should continue upward
through 2013-2015. The company appears
to be onto a growing global health
trend, and its bulk probiotic business is
becoming an increasingly solid cash generator.
Jeremy J. Butler
