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Crunching
Bohai's Numbers: Value Still Swelling, Target Still Rising |
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Several
weeks ago I presented to you a growth/profit story that was about as attractive
as any stock any of us could ever imagine, complete with (legitimate) single-digit
P/E ratios and 20% profit margins. Since then, Bohai Pharmaceuticals Group
(BOPH) has not only continued to impress, it's gotten even more impressive
with today's news. In all seriousness, BOPH is rapidly materializing as
the kind of undervalued growth story someone like Warren Buffett would
be interested in.
I'll
get to today's news below, but here’s a little teaser - a respected
analytical firm thinks Bohai Pharmaceuticals shares could be worth more
than 300% of their current value. Before dissecting the valuation though,
I want to paint a quick picture.
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Numbers
Tell the Bohai Tale |
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 Not
that Bohai wasn't on a roll before, but I think the last reported quarter
(ending on 9/30, reported in November) was the one that made a definitive
statement to the world. It was with that update U.S. investors could start
to inspect the year-over-year numbers. Here's what they found:
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Revenues
of $17.0 million for the quarter ending on September 30th, versus
$13.9 million for the same quarter a year earlier.
-
Net income
of $3.0 million last quarter, against $1.9 million for the comparable quarter
in 2009.
-
Earnings
per share of $0.15, and an EPS of $0.61 for the whole year.
That's
some major growth. How major? In the same order, that a 22% increase in
the quarterly top line, and a 57% increase in the bottom line. That EPS
figure translates into a trailing twelve-month P/E of 3.0. Yes, you read
that right... a P/E of 3.0.
And
to be perfectly clear, the prior quarter wasn't some sort of accounting
fluke - Bohai Pharmaceuticals has consistently grown its revenue levels
over the last year and a half from the $12 million range to something in
the high teens. Net income has similarly trended higher, increasing from
$7.9 million for the year ending in the middle of 2009 to $9.5 million
for the most recent completed fiscal year. That's a 19.4% improvement.
Said
more plainly, Bohai Pharmaceuticals is not just growing, it's reliably
growing.
The
thing is, this is only the beginning.
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Now
That the State's Backing It... |
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Bohai
has been cultivating this growth on its own, directly taking its traditional
Chinese medicine (or TCM) to more and more consumers in this growing market.
In fact, the TCM market organically grew at an annual rate of 20% over
the last several years, and now makes up more than 1/4 of China's total
pharmaceutical market... and that was before the state instituted a sweeping
overhaul of China's healthcare system.
In
2009, the People's Republic of China State Council pledged to cover 90%
of the nation's population with basic health insurance and access to basic
healthcare. Moreover, the council also committed $124 billion toward the
effort.
To
answer the next question, yes, traditional Chinese medicines are covered
and subsidized as part of this plan. [What may be deemed 'alternative medicine'
in the United States is quite mainstream in China, and can be just as effective
as what Western cultures consider to be mainstream treatments.]
And
to answer the follow-up question, yes, Bohai Pharmaceuticals is a direct
beneficiary of the country's initiative. Five of Bohai's products are eligible
for reimbursement under the national health plan, and the company has the
rights to produce twelve more of those reimbursement-eligible products
at any time. As of right now, it's got a total of 15 revenue-bearing products.
It
doesn't take much to connect the dots here... billions of government dollars
supporting the industry, Bohai's own proven organic growth, persistently
high margins, and a P/E in the 3.0 area? That's a stunning value, and if
the market cap were bigger than about $30 million, it's the kind of business
someone like Warren Buffett would be interested in buying.
The
market's just simply missing the boat on this one, but let's be honest
with ourselves - the market's not going to miss this boat for much longer.
The time to wade in is now, before BOPH gets discovered in a big way.
On
that note...
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The
Analysts Are Catching On |
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 Ever
heard of Murphy Analytics? It's a boutique equity research firm that covers
a lot of small cap stocks that need closer inspections, but just can't
get them from some of the big houses. Murphy does a great job with their
work too, getting down to details and perspective you won't find in too
many other places.
Yeah,
well, Murphy Analytics just updated their view on Bohai Pharmaceuticals
Group, and raised its price target to $7.50. That's a mere 314% better
than where BOPH shares are trading at now.
I don't
disagree one bit with their assessment either.
The
full report's available using the link in the press release below. I do
want to highlight the rationale for the price target though; I think you'll
agree with it too.
Bohai
earned $0.15 per share last quarter. It earned $0.61 for the full year.
Do the math here. The company's consistently earning about $0.15 per quarter,
against the current share price of $1.70. That means the P/E is around
3.0. Even adjusting for a full potential dilution, the company should be
clearing at least $0.50 per share per year.
Comparable
Chinese companies are trading at 15 times trailing twelve-month earnings.
If Bohai Pharmaceuticals makes its way to comparable valuations (15 times
$0.50), that would mean a price of $7.50, which is clearly even stronger
than my early high-end target of $6.00. Murphy sees it, and I suspect other
analysts and investors are also starting to see it.
It's
not just a P/E measure that's so attractive here though. How often do you
see a stock with a market cap of half its revenue? Even at full dilution,
the top line would still be bigger than Bohai's market cap.
Never
even mind the fact that this $30 million company's got $31 million in liquid
assets, and $50 million more in total assets than total liabilities. The
company's could do absolutely nothing at all from this point forward and
still be worth more than it is right now.
You
get the idea - BOPH is undervalued as is, and could easily justify being
priced two to three times where it's trading now. I can't see investors
ignoring this one much longer, and when they finally warm up to it, it
could be a flash rally. Better to be in front of any move on this value
play rather than chasing it from behind.
Here's
the news.
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Murphy
Analytics Releases Updated Research Report on Bohai Pharmaceuticals
New Report Outlines
Recent Positive Developments and Raises 12-Month Price Target to $7.50
YANTAI, CHINA
- January 7, 2011 - Bohai Pharmaceuticals Group, Inc. (OTCBB/OTCQB: BOPH),
a China-based pharmaceutical company engaged in the production, manufacturing
and distribution of Traditional Chinese Medicine (TCM) in China, today
announced the release of an in-depth research update by Patrick Murphy,
CFA, principal of fee-based, independent research firm Murphy Analytics.
As part of
his detailed analysis of the company, Mr. Murphy raises his 12-month price
target on Bohai Pharmaceuticals to $7.50 per share.
"Through
our recently expanded TCM portfolio and proactive sales initiatives, Bohai
is addressing the demand of China's rising middle class and elderly populations
for pharmaceuticals and healthcare products, including TCM," said Mr. Hongwei
Qu, President and Chief Executive Officer of Bohai Pharmaceuticals. "This
research report update provides investors with an in-depth analysis of
Bohai's particular strengths in the TCM market in China and delivers a
comprehensive overview of our revenue and earnings potential as we seek
to drive growth in 2011."
In his updated
report, Mr. Murphy states, "BOPH is delivering recurring revenue and earnings
growth in the rapidly expanding TCM segment of the emerging Chinese healthcare
market. The Company benefits from key protection status for its core products
and very positive preliminary results on the launching of 5 new products,
which bring the total number of manufactured medicines to 15 prescription
and over the counter products. The Company has a strategy to capitalize
on growth opportunities in urban and rural markets and seems to be well
positioned to monetize these opportunities."
The report
details the significant growth projected in China's pharmaceutical market,
which benefits from a growing elderly population, a PRC government that
is increasing government healthcare spending to $125 billion by 2011, and
direct health care subsidies for urban and rural residents that cover up
to 90% of the cost for certain pharmaceuticals and 100% of Essential Drug
List products.
"Whether
analyzing the trends in the general Chinese healthcare market, or solely
within the segment known as Traditional Chinese Medicine (TCM), the near
and long term trends seem highly favorable, with significant continued
growth expected for the foreseeable future," adds Mr. Murphy. "Based on
the market opportunity before the Company and the results delivered to
date, Murphy Analytics is raising the price target on BOPH from $6.45 to
$7.50."
The complete
report is available in Acrobat format, free of charge:
http://www.murphyanalytics.com/uploads/BOPH_Update
About
Bohai Pharmaceuticals Group, Inc.
Based in
the city of Yantai, Shandong Province, China, Bohai Pharmaceuticals Group,
Inc. (OTCBB/OTCQB: BOPH) 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 three lead products, Tongbi Capsules, Tongbi Tablets and Lung Nourishing
Cream, are eligible for reimbursement under China's National Medical Insurance
Program.
For comprehensive
investor relations material, including fact sheets, research reports, presentations
and video, please follow the appropriate link: Investor
Relations Portal, Investor
Fact Sheet and Overview
Video.
For additional
information, please visit Bohai's corporate website: www.bohaipharma.com.
Information
Regarding the Murphy Analytics Report
Although
the Murphy Analytics report described herein was commissioned and paid
for by Bohai Pharmaceuticals Group, Inc., the company notes that the report
was generated independently by Mr. Murphy, and statements by Mr. Murphy
are his own and not attributable to Bohai Pharmaceuticals Group, Inc. Readers
are advised to review the report in its entirety, including the disclosures
and disclaimers noted therein.
Additional
Information Relating to Bohai's Trading Data
Due to certain
recent disruptions in the marketplace relating to quotations on the OTC
Bulletin Board operated by FINRA (OTCBB), incomplete trading data may exist
for certain companies like Bohai. Real-time trading data for Bohai on the
OTCQB market is available through the below link. Readers are advised that
OTCQB market is operated by the owner of otcmarkets.com, and Bohai Pharmaceuticals
Group, Inc. makes no representation or warranty regarding the OTCQB market.
For real-time
trading data for Bohai on the OTCQB market, including Level 2 quotes, please
visit: www.otcmarkets.com/stock/boph/quote.
Cautionary
Note Regarding Forward Looking Statements
This press
release, the research report referred to herein and the statements of representatives
of Bohai Pharmaceuticals Group, Inc. (the "Company") related thereto contain,
or may contain, among other things, "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical fact included herein are
"forward-looking statements," including any other statements of non-historical
information. These forward-looking statements are subject to significant
known and unknown risks and uncertainties and are often identified by the
use of forward-looking terminology such as "guidance," "projects," "may,"
"could," "would," "should," "believes," "expects," "anticipates," "estimates,"
"intends," "plans," "ultimately" or similar expressions. All forward-looking
statements involve material assumptions, risks and uncertainties, and the
expectations contained in such statements may prove to be incorrect. Investors
should not place undue reliance on these forward-looking statements, which
speak only as of the date of this press release. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of a variety of factors, including factors and risks
discussed in the periodic reports that the Company files with the Securities
and Exchange Commission (http://www.sec.gov). All forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by these factors. The Company undertakes no
duty to update these forward-looking statements except as required by law.
Company
Contact:
Bohai Pharmaceuticals
Group, Inc.
Gene Hsiao,
Chief Financial Officer
856-499-4475
Investor
Relations Contacts:
The Trout
Group
Danielle
Spangler
646-378-2924
Trilogy Capital
Partners - Asia
Darren Minton,
President
Toll-free:
800-592-6067
info@trilogy-capital.com |
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