Replies to post #368 on Biostar Pharmaceuticals, Inc. (BSPM)

[viking86]

A few weeks ago when CKuratz posted his 2010 model with an eps much over $1 assuming a core business growth of 50%, I whined saying 50% is a too aggressive assumption, we should be more conservative. Now Gorilla proposed another model with 0% core growth, I whined again, saying it's too conservative. Am I a borne whiner or just trying to hit the golden middle b/w being conservative and realistic? haha...

Anyway I realized during the previous disc with CKuratz how little I really understand the core business of BSPM, the one that allowed it to grow revenues over 100% yoy for the past 3 years even before the recent rapid expansion in rural and urban areas. Not saying that we havenot done enough DD and read all the 10K and presentations over and over. But it's somehow much easier for us investors (for me at least) to grasp the revenue growth via the rural outlets, the urban areas, a few % here and there margin increase due to the material processing center and some new drugs... than to grasp that big thing that made the 100% annual growth possible: BSPM's core business of marketing and distributing its drugs nationwide thru its extensive and effective network of distributors and sales agents. Here is an excerpt from the 2009 Investor Presentation re. the core business:

Sales & Marketing Plan
• High-margin products – Xin Ao Xing Capsules
– Increase marketing efforts and establish sales network in 21 provinces in China
– Launch the CHIH (China Hepatitis Internet Hospital, www.zggbyy.com) and establish the online platform to enhance the brand name and customer loyalty, while driving further product sales of its XinAo Xing Oleanolic Acid Capsule
– Invest $1 million to purchase HBV testing equipment to equip some small and medium size hospitals’ Infectious Disease Department
• Terminal agent network – Gan Wang Compounds
– Set up terminal agent network with nearly 300 sales offices and agents
– Launch the cold medicine market and outlets throughout 30 provinces in China
• New rural cooperation medicine supply network
– Build 50 county-level drug supply distribution centers in western China to cover
more than 10,000 clinics in rural area
– Establish a certain number of regional operations providing medicine and medical services to the rural areas in western China


So although I much respect Rich's conservatism and excellent writeup that very well summarizes BSPM's merits, I think we may be doing this company (and us investors) injustice by basically ignoring the continued growth of its most important business segment which is the core business. Sure the new outlets will in time grow significant revenues as they become more numerous and may one day become BSPM's main revenue growth engine, an opinion I have expressed in my previous replies to CKuratz. But we are not there yet. The outlets accounted for only 20% of 3Q09 revenue. 80% came from core business. Thus I have to disagree with Rich's argument that by adding projected revenues from the 3 very recently added urban areas, we have accounted for a 37% growth of the core business. That's an underestimate of what this core business is and can do.