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Cheap China Stocks – China Botanic Pharmaceutical Trading At 1.2X EPS

Posted by AGORACOM at 9:54 AM on Monday, March 19th, 2012

The problems with some Chinese Reverse Merger companies are well documented …. but if there was ever an example of babies being thrown out with the bathwater, it is the valuation hits being taken by all Chinese small-caps across the board.   There is no doubt that investors are going to have to be vigilant about any investments made in the space … but one can’t ignore the fact that some incredible opportunities are now presenting themselves as well.

CHINA 2.0

Borrowing from the concept of Web 2.0, in which we saw the implosion of the dot-com bubble, followed by the resurgence of “real” dot-coms and massive subsequent share gains, I fully expect to see the same thing happen with Chinese small-cap stocks.  Specifically, we’re going through the implosion of China 1.0 small-cap stocks right now, thanks in large part to reverse merger frauds.  This won’t last forever.  Eventually – and we are well on our way there –  the scam companies will be discovered and dismissed.

When the dust settles, we are going to find two kinds of companies.  First, existing “real” companies trading at ridiculously cheap valuations.  I see massive gains being made in these companies over the next 24 months (think Aamzon and eBay).  Second, we are going to see new “real” companies starting to list on American Exchanges with great fundamentals and fast growth stories (think Google and LinkedIn).

Investors that keep their eyes and due diligence open today stand to potentially make Web 2.0 style gains in the coming years from cheap Chinese small cap stocks.

Below are just a few I’ve discovered over the past year … and I’m going to keep a rolling list going forward. Today’s new addition is China Botanic Pharmaceuticals (see my notes below)

If you wish to see original entries for each of these companies, just click on my Cheap China Small Cap Stocks category to see each entry and accompanying notes.  Moreover, I have covered these companies on Chinese Small-Cap TV (Today’s Show) (Archives).

CONCLUSION

Babies are being thrown out with the bathwater in the Chinese Small-Cap Space. I don’t see any need to rush into them as I expect this period of lost confidence to extend into the late summer at the very least. On the other hand, I see plenty of reason to begin building positions in these and other candidates over the next few months for long-term holds.

 

COMPANY Q EPS EPS (EXTRAPOLATED) PRICE P/E
China ACM (CADC) $0.19  May 13 $0.76 $2.34 3.1
US China Mining (SGZH) $0.22  May 16 $0.88 $4.00 4.5
China Industrial Waste (CIWT) $0.08 May 16 $0.32 $1.08 3.4
China Green Material (CAGM) $0.04 May 16 $0.16 $0.66 4.0
China BCT Pharmacy (CNBI) $0.16 May 16 $0.64 $2.40 3.8
Nutrastar Int’l (NUIN) $0.18 May 16 $0.72 $3.00 4.2
China TMK Battery (DFEL) $0.09 May 17 $0.36 $0.55 1.5
HQ Global Education Inc. $0.15 July 15 $0.60 $0.36 0.6
China Botanic Pharma. $0.33 Mar 19 $0.88 guidance $0.75 1.2

 

You will note I have a column for “extrapolated” EPS over the entire year. This assumes these companies will continue to generate EPS at the pace on the day we covered them. Yes, this is a major assumption … but it also assumes these companies won’t be increasing EPS over the current fiscal year as well.   That’s  a pretty big trade off considering they are more likely to grow EPS than remain stagnant or even drop.

With those assumptions out of the way, the prevailing theme seems to be P/E multiples of ~ 3.5X. That is damn cheap for any company, let alone companies that are growing their top and bottom lines by 40, 50, 60, even 100%.

In the case of of China Botanic Pharmaceutical, the company has actually provided earnings guidance of ~ $33,000,000 for 2012.  That translates into about $0.88 EPS for fiscal 2012.  At a current price of just $0.75 the company is trading at 1.2 X EPS.   That is not a typo …. 1.2

CHINA BOTANIC PHARMACEUTICAL NOTES

The company released their Q1 numbers for the period ended January 31, 2012.  Here are the highlights:

First Quarter 2012 Highlights

  • Net sales increased 24.4% year over year to $28.1 million
  • Gross profit increased 25.4% to $17.3 million from $13.8 million in the first quarter of fiscal 2011
  • Gross margin increased to 61.6% from 61.1% in the year ago period
  • Net income rose 12.4% to $12.3 million, or $0.33 per diluted share, from $10.9 million, or $0.29 per diluted share, in the first quarter of fiscal 2011

At a market cap of just $28,000,000 as of Friday, the company is ridiculously cheap by ever metric.  For example, it is essentially trading at 1X revenue after just the first quarter of revenue.  Add that to 1.2X EPS at this point and CBP is super cheap.

Financial Condition

As of January 31, 2012, China Botanic had cash of approximately $21.4 million and total current assets of approximately $70.6 million. The Company had working capital of approximately $56.9 million on January 31, 2012, as compared to $40.8 million at the fiscal year end of October 31, 2011.

If the company has $21.4 million in cash on hand, you are buying the actual business for just $7,000,000 ($28M market cap – $21M cash)., which makes the revenue multiple and EPS multiples above so cheap it is almost embarrassing.

Business Outlook

For fiscal year 2012, China Botanic reaffirms its guidance of revenues of between $91.6 million and $93.1 million, representing an increase of 26% to 28% over fiscal year 2011 revenue of $72.7 million. Revenue growth is expected to be driven largely by sales volume increases from the existing product portfolio. The Company expects net income to be in the range of $32.7 million to $33.2 million

Not only are you buying the current company at embarrassingly cheap multiples, you are also buying its growth for even less.

CONCLUSION

Unless China Botanic Pharmaceutical is about to be shut down as a major reverse merger fraud scam, investors stand to make a lot of money from any investment in it.

* I have no share position or affiliation with the company.  I would really like to change that on both fronts over the coming weeks and months.

Regards,

George

AGORACOM Small-Cap Wire – China Rich Love Canada, QE3 Has Started, Brilliant Greek Prime Minister

Posted by AGORACOM at 8:07 AM on Thursday, November 3rd, 2011

AGORACOM WIRE – THURSDAY, NOVEMBER 3rd

8:00 AM EST …

CHINA’S RICH LOVE CANADA … Canada Booms As #2 Destination For Emmigrating Chinese Millionaires … And Growing  Full Story

JIM ROGERS SHOWS QE3 HAS ALREADY STARTED … Every Banker Is Rigging The Game Why Not The Fed? Must See Video and Story

WHY GREEK REFERENDUM MOVE IS BRILLIANT … Greek Prime Minister Papandreou Is Now In A No Lose Position Full Story

NO TIME FOR TWITTER? TSX Venture Tweets Summarizes The Best Tweets From Participating TSX Venture Companies. Check It Out

RUMOURS GONE WILD … Euro Runs Up and Down On Rumours / Refutes Of Greek PM Resignation, Confidence Votes, You Name It.

TAKE A MOMENT TO DISCOVER OUR SPONSORS – THEY ARE GREAT!


Link to HUBWebsiteStock Quotes

AGORACOM Small Cap Wire – QE3; $1,700 Gold; $100+ Silver; The BIG Bear Case

Posted by AGORACOM at 8:38 AM on Monday, August 8th, 2011


AGORACOM WIRE – MONDAY AUGUST 8TH, 2011

8:15 AM EST TOP STORIES … AS EXPECTED


US Stock Futures Down Strong – Click Here

GOLD BREAKS $1,700 AGORACOM Gold Prices Matrix

Today Is Not Decision Day … Protect Your Capital If You Need To … But Not Out Of Panic … Selling Seems Orderly For Now

QE3 WATCH ….

CHINA / USA COLLISION COURSEAGORACOM Twitter
$14.3 TRILLION GRAPH – Who Created It & Who Holds It See Graph, Stop Finger Pointing
THE TECHNICAL BIG BEAR CASE – Agree Or Not, This Is A Must Read
TRIPLE DIGIT SILVER – Sprott and Citigroup Knew Something Was Up When They Made These Bold Predictions
DISCOVER OUR GREAT SPONSORS

SNAPSHOT: How $14.3 Trillion Debt Was Acquired .. & Who Holds It

Posted by AGORACOM at 12:29 AM on Monday, August 8th, 2011

I won’t say anything more than thanks to my friend Barry Ritholtz for this awesome snapshot of The $14.3 Trillion US Debt picture. Read his blog and learn!

Courtesy of Barry Ritholtz

AGORACOM Small Cap Wire: $1,700 Gold; What To Watch Tonight; China Is Mad: QE3 Cometh

Posted by AGORACOM at 12:14 AM on Monday, August 8th, 2011


AGORACOM WIRE – SUNDAY NIGHT EDITION

11:50 PM EST … GOLD HITS $1,700 AGORACOM Gold Prices Matrix

6:45 PM EST … Too Early For Meaningful Analysis … Just A Guessing Game … So Let’s Watch The Action For A Few Hours

What To Watch Tonight

Gold Is Up $37 … Hit $1,697 … Silver Flat

Analysis To Begin Later Tonight … In The Meantime …

POPULAR WEEKEND ARTICLES

Uh Oh, China Is Mad … Official Statement Blasts US, Calls For New Reserve Currency (Full Story) …George Says ..

  • Gold / Silver Set To Explode …
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GEORGE’S QE3 “DELAY” PREDICTION – We Predicted Political Delay, Damage and Data On March 30th,

TRIPLE DIGIT SILVER – Sprott and Citigroup Knew Something Was Up When They Made These Bold Predictions

1:1 Gold / Dow Ratio? See The 200 Year Chart And Discuss … This Article Continues To Be A Favourite Amongst Members

AGORACOM Wire – What Small Cap Investors Are Reading Today

Posted by AGORACOM at 12:30 PM on Tuesday, May 17th, 2011

AGORACOM WIRE – TUESDAY MAY 17TH 2011

VIDEO: Eric Sprott Buying Silver Today, Tomorrow, ….. Why Sprott Could Care Less About The Latest “Raid”  See Video

US REAL ESTATE CRASHING … The Numbers Say It All

GEORGE’s CALL … In October 2009, George Predicted Worst Was Yet To Come For US Real Estate … Today? “The Worst Is Still Yet To Come” Posts

CHEAP CHINA …. Several Fraud Cases Have Beaten Down Legitimate Companies … We Identify Just A Few Cheeeeeap Stocks With Big Upside.

DISCOVER OUR SPONSORS – THEY’RE WORTH A LOOK!

AGORACOM Wire – What Small-Cap Investors Are Reading This Weekend

Posted by AGORACOM at 9:37 AM on Saturday, May 14th, 2011


FORBES: GOLD STANDARD IN 5 YEARS? .. Yes Says Steve Forbes

$2,000 GOLD BY YEAR END … Ian Telfer Of Goldcorp Makes A Big Call … Peter Munk Certain Gold Is Going Up Full Story

RING OF FIRE POLITICS … A Conservative Majority Government May Be Just What Noront And Other ROF Small Caps Needed

SMALL-CAP GREEN ENERGY NEWS! Extreme Biodiesel Selected At Defense Summit and Afganistan Summit … View Photos and Videos Of Their Production Facility *CLIENT*

SORRY! CORRECT SURVEY LINK: Hundreds Clicked Through To Our Survey But There Was A Problem With The Link. PLEASE Try One-More Time … How will the Conservative Majority Government impact small-cap stocks and Investors?

INTERTAINMENT BUZZ … Glorieux Thinks He May Have Jumped The Gun … Others Think This Is The Time To Buy … George Waits … Thread

CHEAP CHINA: Some Fraud Amongst Chinese Small-Caps Has Affected All Stocks … Creating Huge Profit Opportunities Like This One

VIDEO: GREEN GOOGLE – The Internet Giant Is Investing In Green Energy …. Why And What It Means For Small Cap Watch On XZERES HUB


No Insider Trading On Fuqi Int’l Today ($FUQI)… None Whatsoever

Posted by AGORACOM at 12:50 PM on Friday, March 4th, 2011

AGORACOM Dominates Chinese Small Cap Stock Searches On Google

Posted by AGORACOM at 3:25 PM on Monday, February 28th, 2011

A Picture Is Worth 1,000 Searches (Click On Image For A Larger Version):

Once you are done, see AGORACOM Small-Cap Videos Break 300,000 Views. Dominate Search Engines.

Why David Rosenberg Believes Resource Sector Remains A Core Holding

Posted by AGORACOM at 8:00 AM on Thursday, August 12th, 2010

If you don’t know who David Rosenberg is, you better get to know him.  Why? Forget about his title – there are plenty of useless anyalysts out there with big titles –  here is his track record in what has been a very difficult decade for institutional and retail investors:

From 2001 to 2008, Mr. Rosenberg was ranked first in economics in the Brendan Wood International Survey for Canada, ranked second overall in the 2008 Institutional Investors Survey for the U.S., and was on the Institutional Investor All American All Star Team from 2005-2008. Mr. Rosenberg also ranked 4th out of 104 economists in the 2009 Thomson-Extel survey of global portfolio managers. Mr. Rosenberg also ranked 4th out of 104 economists in the 2009 Thompson-Extel survey of global portfolio managers.

He is currently the Chief Economist over at Gluskin Sheff and a Canadian. I don’t add in that last point for humour.  As a Canadian, I believe he has a decidedly more rational head than his US counterparts that are typically guilty of both following the herd and looking after their own pockets.  I love the fact that Rosenberg doesn’t sit on the fence.  He develops a market outlook and tells you what he’s going to do about it.  None of the typical, “the ying could yang, but the yang could ying” bullshit that you often hear from these guys.

More importantly, as his track record demonstrates, he is often right.

Rosenberg is a great tool for retail investors because he isn’t shy about sharing his views.  He frequently speaks with both traditional media and some of the better financial blogs, including my friend Barry Ritholtz.  As such, it’s pretty easy to follow his thoughts.  I suggest you follow him via a Google Alert RSS Feed so that you don’t miss a thing.

RESOURCE SECTOR REMAINS A CORE HOLDING

In his market commentary yesterday, he provided his typical great analysis on the state of the markets.  It’s a must read as he covers inflation, deflation, the US economy, emerging markets and his recommended investment strategies.  In addition, he made the following statement with respect to the resource sector:

Moreover, I don’t believe in all the stories about China collapsing. In fact, if there is a bullish story to be told, it is that the secular growth paths in not only China, but India, Indonesia and Korea and that will continue to ensure that the resource sector remains a core holding, with oil and food retaining geopolitical significance and gold remaining a critical hedge against ongoing reflationary policies that weakens the U.S. dollar in coming months as a critical mid-term election approaches.

If that isn’t telling it like it is, I don’t know what is.

Regards,
George