China Tracker - Details for American Oriental Bioengineering (AOBI)

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 American Oriental Bioengineering
 Analyst Coverage
2011-03-15Brean MurrayDowngradeHoldn/a
2010-11-15Brean MurrayReiterationBuy$3.70

Revenue beat but EPS missed. 3Q10 revenue came in at $91.5 million (up 16.1% YoY), which beat the Street's $88 million and our estimate of $90 million. Net income of $5.3 million missed the Street's and our $6 million forecast slightly. EPS was $0.07, which missed the Street's and our $0.09 forecast. Higher-than-expected selling and marketing expenses (15.2% of revenue), advertising expenses (12% of revenue) and R&D investment (5.2% of revenue) dragged operating pro fit margin from 11.8% in 2Q10 to 9.8%. Management plans to continue the investment in selling & marketing, advertising and R&D for future revenue growth.

Revenue turning around: Healthy growth in all three segments. As we mentioned in our previous report, we believe the worst for AOB is over, and this quarter's revenue growth is impressive in a relatively unfavorable industry environment. The 16.1% YoY increase in total revenue was attributable to 16.9% YoY growth of pharmaceuticals sales (25.1% YoY growth in prescription and 10.1% YoY growth in OTC), 11.4% YoY growth in nutraceutical sales, and 14.4% YoY growth of its distribution business.

Margin pressure will exist. Gross margin of 51.7% is similar with 51.5% in 2Q10 but a 4.3% decline compared to 3Q last year, due to pricing pressure from healthcare reform, new GMP standard implementation and rising raw materials prices. Although investment in R&D and sales and marketing will likely continue to pressure margins in the future quarters, we think AOB is on the right track to keep building its brand awareness, broad and deep distribution network, and especially its strong prese nce in rural markets. We also view the margin pressure as an industry-wide problem rather than a company-specific problem. Although industry headwinds still persist, AOB's market share should increase and potential acquisition opportunities will likely surface as smaller players are struggling.

Compelling valuation might attract strategic investors. We now forecast FY10 revenue, net income and diluted EPS to be $330.7 million (11.7% YoY growth), $21.0 million and $0.26, respectively. The stock is trading at 9.9x and 8.3x our FY10 and FY11 diluted EPS estimates, respectively. On an EV/EBIDTA basis, the stock is at 4.7x our 2010 estimate and 4.4x 2011 estimates. In addition, EV/2011e revenue is close to 0.54 and EV/BV is at 0.34. We believe AOB's franchise is worth more than its cur rent market valuation, which could attract strategic investors who are interested in China's ever growing pharmaceutical market. We maintain our Buy rating.

2010-08-09Hudson SecuritiesReiterationHoldn/a

We are lowering our 2010 and 2011 top and bottom line estimates. Our 2010 and 2011 revenues are lowered to $325.3MM and $356MM from $334MM and $370MM, respectively. While our 2010 and 2011 EPS are lowered to $0.25 and $0.28 from $0.37 and $0.40. Cost from continuing raw material price increase, pricing pressure from China’s healthcare reform and continuing selling, marketing and advertising expenses with new product launches and to help sustain brand. At this critical stage of the Company’s life cycle, we view management needs to show maturity and good judgment in finding balance within its business strategy – buy vs. build, to help curve and control increasing expenses.

2010-05-10Hudson SecuritiesReiterationHoldn/a

We are lowering our 2010 and 2011 diluted EPS estimates to $0.37 and $0.40 from $0.52 and $0.58, respectively.

2010-03-15Hudson SecuritiesReiterationHoldn/a

We are lowering our 2010 EPS to $0.52 from $0.63 to account for our understanding of the potential continuing increase in raw material pricing and other increasing costs such as increasing labor costs. We are introducing our 2011 estimates with total revenues of $370.6MM and diluted EPS at $0.58 per share. Our 2010 and 2011 top line estimates reflect very modest 11.7% and 12% YoY growth, respectively.

Healthcare & Drugs
READ: Score Cards Explained
DETAILS: Safety/Risk Model for AOBI
Current Price:  n/a
F10k Day (2002-02-22): -100.00%$0.75
2009 Close: -100.00%$4.65
2010 Close: -100.00%$2.40
2011 Close: -100.00%$2.24
High (2012-03-14): -100.00%$1.59
Low (2012-07-13): -100.00%$0.05
Market Capitalization: n/a
Total Shares: 78.18 mill
Float: n/a
Avg Volume: n/a
Last Quarter: 2011-03-31
Revenue (MRQ): 52.00 mill
Net Income (MRQ): 0.92 mill
Op. Cash Flow (MRQ): 21.60 mill
all financial data provided without warranty