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.
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.
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