Before
we begin today's feature edition Bohai Pharmaceuticals (BOPH), China Vesting wanted to thank Mark
Cuban for introducing us to his twitter
feed. The traffic prompted us to upgrade servers...thanks
a lot Mr. Cuban we will be sending the bill to the Dallas Mavericks...which
begs us to ask...why do they call the Mavericks "baby bulls" in China?
Why not something a little more direct in the translation to "Mavericks"?
We hope this new audience will hopefully benefit from our China perspective.
As a token of our appreciation, China Vesting will be writing an article
later this week or early next week on why so many companies do not IPO
in China. This was a point brought up by Mr. Cuban in his twitter
feed...which we were not able to view in China. China Vesting's explanation
may be the only time someone has ever spoken of the REAL reasons.
How do we know? Many Chinese reverse mergers began their paths to
the public markets waiting in the China domestic IPO queue, only to find
it "unsuitable". In addition, our contacts at the most prestigious
investment bank in China...(hint...Cough
I...Cough
Cough)
have given ChinaVesting incredible insight. This is going to be a
must read for anyone interested in putting a penny into China stocks.
 |
|
One of the biggest differences between the United
States and China is what constitutes medicine. For thousands of years
the Chinese have used Tradition Chinese Medicine (TCM) while America
takes a much more scientifically based approach to medicine. TCM
is based more on natural ingredients while western medicine is based on
FDA trials and massive amounts of research & development. This
is not to say one is better than the other although there are proponents
and opponents on both sides. The point is not to judge...China and the
U.S. are just different when it comes to health.
There seems to be a limitless amount of small
and medium sized TCM companies throughout China. Most are small regional
players although some have made it to the big stage. American
Oriental Bioengineering (AOB)
is the biggest of the sector with almost $300 million USD in annual sales.
AOB is one of the first really successful China Reverse Mergers to list
in the United States. However, we are sick of seeing their commercials
literally run every minute in China...note to AOB...hire a famous celebrity
to make your commercials more entertaining.
In the future it is our prediction that the government
will clean the industry up and consolidate. This will make the TCM
industry more legitimate because the potential for abuse is substantial
in the TCM world. This would be equivalent to nutraceutical companies
in the U.S. making health claims for their products...but they don't really
work...oh wait that already happens. The major check and balance
would be that in China, if the TCM actually CAUSED health problems the
owner would face penalties that a U.S. businessman would not...need we
say more?
Without
further delay China Vesting would like to announce the addition of Bohai
Pharmaceuticals (BOPH)
to the Dragon Undervalued Index. Based in the city of
Yantai, Shandong Province, China, Bohai Pharmaceuticals Group, Inc. is
engaged in the production, manufacturing and distribution of herbal pharmaceuticals
based on Traditional Chinese Medicine in China. Bohai's medicines address
common health problems such as rheumatoid arthritis, viral infections,
gynecological diseases, cardio vascular issues and respiratory diseases.
Bohai's products are sold either by prescription through hospitals or over-the-counter
through local pharmacies and retail drug store chains. Bohai has approximately
600 employees, including approximately 300 sales representatives, operating
from 20 offices throughout China. Bohai's lead products, Tongbi Capsules
and Tablets and Lung Nourishing Cream, are eligible for reimbursement under
China's National Medical Insurance Program.
Here are some stats...The most important being
the stock is currently trading at $2.25 per share.
-
FY June 30, 2010 projected net revenue of $58
million (vs. $49.3 million FY 2009), equating to an 18%
year-over-year net revenue increase.
-
FY June 30, 2010 projected net income of $9.0
million (vs. $7.9 million FY 2009), equating to an approximate
14%
year-over-year
net income increase.
-
16,250,000 shares outstanding before the offering.
22,250,000 shares outstanding after recent funding.
-
Raised $12,000,000 USD (6,000,000 shares at $2.00
with 6,000,000 warrants at $2.40)
-
EPS of ($9.0 million / 22,225,000) = $0.404
per share
-
Euro Pacific acted as the lead placement agent and Chardan Capital Markets,
LLC acted as co-placement agent of the private placement.
-
Bohai website (http://www.bohaipharma.com/)
-
Fiscal Year 2010 earnings to be released on September 28th.
 |
|
Usually
in the Chinese reverse merger handbook...just don't ask us which page...
hedge funds will invest at a super low valuation and then when the stock
is publicly traded the valuation is about double. Now that the market
and appetite for Chinese companies have decreased China Vesting is starting
to see companies trade at where these funds originally invested at.
The good news is many of these funds have been burned for lack of due diligence
and have learned their lessons...we are referring to the ones that made
it our alive. China Vesting has been putting together a list of companies
whereby the "professional" investors are currently underwater or about
even. Bohai just happens to be one of our favorites.
Bohai did a simultaneous reverse merger and $12 million dollar funding.
Quote from SEC Filings:
On January 5, 2010, we entered into
a Securities Purchase Agreement (the 'Securities Purchase Agreement') with
certain accredited investors, who are selling stockholders hereunder (the
'Investors') and Euro Pacific Capital, Inc. ('Euro Pacific'), as representative
of the Investors, relating to a private placement by us of 6,000,000 units
consisting of Notes and Warrants, which we refer to herein as the private
placement. The consummation of the private placement resulted in
gross proceeds to us of $12,000,000 and net proceeds of approximately $9,700,000.
Each unit consisted of a $2 principal amount, two year convertible Note
and a three year Warrant to purchase one share of our common stock at $2.40
per share, subject to certain conditions. Euro Pacific acted as the
lead placement agent and Chardan Capital Markets, LLC acted as co-placement
agent of the private placement.
Basically
the $12,000,000 funding was 6,000,000 shares at $2.00 per share and 6,000,000
warrants at $2.40 per share. This is the first time we've seen Euro
Pacific acting as a placement agent on a deal but we have heard plenty
about Chardan who is another pioneer in the China space. They were
widely known as early China players in the Special Purpose Acquisition
Company (SPAC) game. What we like about the funding is that the
investors were pretty spread out with not one entity being the majority
investor. Most seem to be private wealthy individuals who are long
term holders.
The pre-money valuation on this funding was $33
million and a post money valuation of $45 million. That
represents a pre-money PE of 3.67 and post money PE
of 5 based on fiscal year 2010 projected net income of $9.0
million.
Currently
at $2.25 per share the market capitalization is $50,625,000 million
which is a PE of 5.625 times fiscal June 30, 2010 earnings projections.
The annual report for Bohai is to be released on September
28th...we expect that management will make some sort of earnings
guidance for fiscal 2011. The $12 million dollar capital injection
should mean a major increase in earnings for fiscal 2011. If the
company grew its earnings from $7.9 million to $9.0 million from internal
cash flow we expect a $12 million dollar cash injection to bump up the
2011 results tremendously.
China Vesting believes that Bohai will eventually
make its way to a senior exchange. Whether this means a reverse stock
split or not will depend entirely on how 2011 financial estimates look.
At $4.00 per share to qualify for Nasdaq, Bohai would qualify immediately
based on stock price if they did a reverse split right now. However,
if they did not then the math would have to be $4.00 X 22,250,000 = $89,000,000
or a PE of 9.89 times fiscal 2010 earnings of $9 million. 9.89 times
earnings is not exactly a bubble valuation but with the heat Chinese stocks
are taking these days it's not going to be easy. If Bohai was able
to increase fiscal 2011 earnings to the $12-$15 million range then the
PE would be 5.9-7.4 times 2011 fiscal earnings. At that point $4.00 per
share would not be out of the question.
The following are links to Bohai related information which was helpful
to China Vesting:
Inside
Wall Street: A Traditional Chinese Medicine Maker Beckons U.S. Investors
Corporate
Power Point Presentation
Company
Profile
SEC
Filings
