China Biologic Could See Strong 2009-2010
China Biologic Products, Inc. [[CBPO.OB]] researches, develops, and produces plasma-based pharmaceutical products in China. The company’s top-selling product, Human albumin, helps increase blood volume in order to help treat shock caused by blood loss. Meanwhile, a recent acquisition may transform the company into a leading supplier in China.
The market for albumin amounted to about $593 million in 2006, while plasma derivatives are expected to grow 15 percent per year through 2011. Through several recent acquisitions, China Biologic is quickly transforming itself into a leader in the Chinese market for plasma-based biopharmaceuticals, and could start to take a larger piece of the total market.
China Biologic increased its exposure to this growing market through its proposed acquisition of a 90 percent controlling interest in Chongqing Dalin Biologic Technologies. If successful, this acquisition would also give it an indirect 54 percent stake in China’s largest biopharmaceutical maker that controls approximately 9.5 percent of the market – Qianfeng.
Qianfeng is one of the largest plasma-based biopharmaceutical companies in China and is the only manufacturer operating in Guizhou Province. The company produces approximately 250 tons of plasma per year through six stations in the province, while it is also approved to produce six types of plasma-based products, including Human Albumin.
China Biologic also acquired approximately 35 percent of a company called Huitian through an equity transfer agreement. The company manufactures plasma-based biopharmaceuticals in Shaanxi Province and is one of only 32 such manufacturers in China who are government approved. The company produces about 80 tons of plasma-based products per year.
Last year, China Biologic reported net income of about $15.29 million on revenues of about $46.75 million, which represents 50.3 percent and 44.3 percent growth, respectively. Meanwhile, the company showed some $8.8 million in cash on its balance sheet, which gives investors a safety cushion with their investment.
Currently, China Biologic is trading for just $3.35 per share with earnings of $0.56 per share in 2008. Given the 50 percent growth rate last year, this yields a PEG ratio of approximately 0.12, which suggests that the stock is substantially undervalued. Meanwhile, the series of acquisitions should help ensure that future growth rates remain intact, while transforming the company into one of the largest providers in China.
Despite the strong growth and prospects, there are several risks for investors in China Biologic. First, the series of acquisitions requires debt and equity, which could worsen the balance sheet or dilute shareholders. Secondly, the Chinese government could change its policies regarding plasma-based biopharmaceuticals and cause problems. And finally, the stock is traded on the OTC markets, which means that liquidity is not always the best.
In the end, China Biologic is a quickly growing stock that represents a compelling value, but also has several risks that investors should consider.
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