A Great Q3, Great YOY Numbers and a Huge Market to Serve
Biostar Pharmaceuticals (BSPM) through its subsidiary, Shaanxi Biostar Biotech, develops, makes, and sells over-the-counter and prescription pharmaceutical products in China. BSPM’s primary product is Xin Ao Xing Oleanolic Acid Capsule, an over-the-counter (OTC) medicine for chronic Hepatitis B. The State Food and Drug Administration (China’s FDA) has approved the anti-Hepatitis medicine for chronic Hepatitis B, a disease affecting approximately 10% of the Chinese population. That’s a big market.
BSPM also makes and sells capsules for the relief of common cold, runny nose, sore throat pain, headache, and fever; and a traditional Chinese medicine capsule used for the treatment of pain and other symptoms associated with menstruation. BSPM’s prescription pharmaceutical products address afflictions like coronary heart disease and pediatric bronchial congestion and coughs in children.
BSPM holds licenses to produce and sell 13 nutrient products. BSPM sells its products to pharmacies directly, as well as through a network of 20 distributors. The co has a sales team of 286 people. BSPM has a R&D agreement with Fourth Military Medical University Xijing Hospital State Drug Clinical Research Center to conduct clinical trial for new drugs, which gives BSPM sole ownership of research results and the economic benefits . Now that’s a partnership. BSPM has adopted international standards and currently has one patent and has two additional patents pending approval.
Here are some quick numbers: BSPM is trading in the $2.88 range today. BSPM has a P/E of 7.65 and EPS ‘this year’ of +43.03% with yoy revenue growth of +29.72%. BSPM has a gross margin of 74.10% and the Co’s ROI is +30.7%. Sound interesting?
Research house Rodman & Redshaw initiated coverage on BSPM on Nov 18 with a Market Outperform’ rating, however there are number of other reasons (in addition to great performance and balance sheet numbers and the size of its Hep B target market) that caught my eye as BSPM being a potential investment.
First up I like the Co’s Nov 15 Q3 numbers: a +29.7% yoy increase in net sales, a GAPP net income increase of +9.8%, and a Non-GAAP adjusted EPS of +$0.13. Notice the number of ‘plus’ increases for the quarter. I also liked BSPM management reiterating its 2010 FY sales and net income guidance of $80 million and $18 million, respectively.
Secondly I like its sequential distribution growth: as of September 30, 2010, the co expanded its rural supply network to approximately 8,500 sales outlets, 21.4% higher than the 7,000 locations at the end of the second quarter of 2010. This sales channel has contributed $9.2 million in revenues for the first nine months of 2010, a 45% increase yoy.
The third reason I like BSPM is its Long-Term possibilities; the co is expecting to receive final SFDA approval to produce Zushima Analgesic spray, a pain reliever product intended for use by Chinese military personnel. BSPM management believes the product can generate $3 million in revenue in 2011 and continue to grow over the years ahead. how big is the Chinese military? I digress…
BSPM is in one of those ‘rare’ ‘High Growth’ modes that successful companies go through when seemingly everything is going their way. With 5 State-Approved products being currently sold and a pipeline of 10 new products in SFDA review (and China slated to become the 5th largest pharmaceutical market by years’ end) BSPM is positioned, positioned, positioned. Most of BSPM’s R&D is done in house and that is not only cost-effective, but gives quality control to trail studies and SFDA review processes.
One other point about positioning; as China’s rural and urban populations melt together, BSPM has those 8,500 sales outlets and management has mentioned that the 10,000 number isn’t far off. With the co launching its Yi Zi Capsules to prevent pregnancy deformations and its Tang Ning Capsules to deal with Type II diabetes, I only see the upside with BSPM considering it was $5.50 in May and is trading at $2.88 today (near its yearly low of $ 2.32). BSPM would be a strong ‘Buy on the Dips’ consideration for me.