China Botanic (NYSE AMEX:CBP)

First Quarter 2012 Results

• 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

During the three months ended January 31, 2012, net revenue increased by 24.4% to $28.1 million from $22.6 million in the same period of 2011. The significant revenue growth was mainly due to price increases across all of the Company's products during the quarter and the increasing market recognition of the Company's Siberian Ginseng Series products and other new products, such as Ginseng and Venison Extract (launched in the fourth quarter of fiscal year 2010) and Badger Oil (launched in the first quarter of fiscal year 2011) as a result of China Botanic's marketing efforts. China Botanic is expecting to gain greater market acceptance in 2012 and beyond and anticipates that market demand for its products will continue to grow.

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, representing an increase of between 26% and 28% over fiscal year 2011 net income of $25.9 million.

"We are pleased to report double digit revenue and net income growth in the first quarter of fiscal year 2012. Our strong growth in sales, profitability, and operating cash flow during the quarter was largely driven by increase in our average selling prices, Siberian Ginseng Series products, Ginseng and Venison Extract product and Badger Oil product," said Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic. "Our Siberian Ginseng products exhibited strong year-over-year sales growth and accounted for 58% of our total revenue in the first quarter of fiscal year 2012 compared with 52% in the same period of last year. This reflected our continued commitment to create awareness and promote our premier product, the Siberian Ginseng Series, and it will continue to remain our top priority in the future. In addition, our new product, Ginseng and Venison Extract, launched in the fourth quarter of fiscal year 2010 has established a strong foothold in the market and contributed 12.5% of our total sales in the first quarter of fiscal year 2012 compared with 9.4% of total sales in the same period of last year."

Fourth Quarter 2011 Highlights and Recent Events

• Net sales increased 12.8% year over year to $18.8 million 
• Gross profit increased 18.5% to $10.8 million from $9.1 million in the fourth quarter of fiscal year 2011
• Gross margin increased to 57.1% from 54.4% in the year ago period
• Net income was $5.4 million, or $0.14 per diluted share, as compared to $5.6 million, or $0.15 per diluted share in the fourth quarter of fiscal year 2010
• In October 2011, the Company appointed Mr. Zack Zibing Pan as an Independent Director and Chairman of the Company's Audit Committee
• In December 2011, China Botanic successfully developed a new Siberian Ginseng (Acanthopanax) Polysaccharide Extract Powder and was awarded the Scientific and Technological Achievements Appraisal Certificate by the Science and Technology Bureau of Heilongjiang Province

Full Year 2010 Highlights

• Net sales increased 31.8% year over year to $72.7 million 
• Gross profit increased 46.8% to $43.2 million from $29.4 million in fiscal year 2010
• Gross margin increased to 59.4% from 53.3% in the year ago period
• Net income was $25.9 million, or $0.69 per diluted share, compared to $17.9 million, or $0.47 per diluted share in fiscal year 2010
• $14.1 million invested in exclusive 30 year Siberian Ginseng resource use right and cultivation rights
• $9.1 million invested in purchase of five new patents

"During the fourth fiscal quarter and fiscal year 2011, we reported strong financial performance as a result of increase in average selling prices of our existing range of products and our ability to introduce successful new products ," stated Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic. "We engaged in aggressive sales and marketing efforts to promote our new products and increase market penetration of our existing product portfolio. We also continued to generate strong cash flow from operations, which allows us to capitalize on attractive growth opportunities, including acquisition of patent rights, Siberian Ginseng cultivation rights and invest in our Ah City phase two expansion plan. We believe such investments will strengthen our market share and generate long term shareholder value in years to come."

Business Outlook

For fiscal year 2012, the Company expects

• 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.

• net income to be in the range of $32.7 million to $33.2 million, representing an increase of between 26% and 28% over fiscal year 2011 net income of $25.9 million.

With the anticipated income from 2012, we believe our cash are adequate to satisfy our working capital needs and sustain our ongoing operations for the next twelve months.

We believe the market for pharmaceutical products in China is growing rapidly. Our growth strategy involves capturing as much of this market as possible during this rapid growth phase. To implement this strategy we plan to strengthen our dominant position in the Siberian Ginseng (Acanthopanax) market, expand our Siberian Ginseng (Acanthopanax) cultivating bases and improving the quality standards of Siberian Ginseng (Acanthopanax), and extend our distribution network through internal distribution channels reforms. Our expansion strategy will require the continued retention and investment of our earnings from operations and, we believe, additional funding from private debt and equity financing. In general, the commitment of funds to research and development, or acquisition or construction of plant and equipment tends to impair liquidity. However, we believe that because of the upward trend in our revenues in recent years, even if this trend levels off, our income from continuing operations coupled with such additional financing, if required, should provide sufficient liquidity to meet our expansion needs.

Third Quarter 2011 Results

Second-Quarter 2011 Highlights and Recent Events

• Net sales increased 56.1% year-over-year to $18.9 million
• Gross profit increased 79.3% to $11.1 million from $6.2 million in the second quarter of fiscal year 2010
• Gross margin increased to 59.0% from 51.4% a year ago
• Net income rose 107.1% to $7.1 million or $0.19 per diluted share vs. $0.08.
• The Company's wholly owned subsidiary, Harbin Renhuang Pharmaceutical Co., Ltd received official approval to produce water-based mixtures.
• The Company successfully completed research of the chromatographic fingerprints for its Siberian Ginseng series products, utilizing a state-of-the-art analysis method which identifies the chemical characteristics of the designated medicine.
• The Company successfully completed a feasibility study to analyze the benefits of using straw pellets, a renewable bio-fuel, for its production operations and plans to put the new fuel into use by October, 2011.

"During the second fiscal quarter of 2011, we continued to benefit from our strong market position, customer loyalty and well-accepted increases in selling prices, resulting in nearly 56% year-over-year growth in revenue and more than 100% year-over-year growth in net income. We are pleased to report strong financial performance during the quarter and remain optimistic about the future," said Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic. "In addition, our four new products, namely Qing Re Jie Du Oral Liquid, Compound Schizandra Tablets, Ginseng and Venison Extract, and Badger Oil have been well accepted in the market and contributed 19% of the quarter's total sales revenue up from 15% in the first fiscal quarter of 2011."

Business Outlook

"We anticipate continued growth in revenue and net income in the coming years driven by our established market presence, strong customer loyalty, ability to introduce new market-oriented products and aggressive sales and marketing efforts. We are confident that we will achieve our goals for fiscal 2011 and meet our financial guidance for revenue in the range of $70.6 million to $71.7 million and our raised after-tax net income guidance of approximately $25.5 million," said Mr. Li. "The recent government levied price controls in the TCM industry do not result in a margin squeeze for China Botanic as our product prices are significantly lower than the government price ceilings and the prices of our competitors. We enjoy a strong pricing advantage even after our recent price increases and our customers are satisfied with the high-quality of our products. In addition, our research team continues to work on several other promising products and we hope to announce new product introductions in the coming quarters, which will strengthen our market position and enhance our longer term growth."

Investors should note that the liquidity statement in CBP's April 10Q was not near as detailed as what was portrayed in its Fiscal 2010 year end 10K (October)

Now:

Based upon our present plan, we believe our cash and accounts receivable are adequate to satisfy our working capital needs and sustain our ongoing capital needs for the next twelve months.

vs.

Then:

Expansion Strategy

We believe the market for pharmaceutical products in China is growing rapidly. Our growth strategy involves capturing as much of this market as possible during this rapid growth phase. To implement this strategy we plan to strengthen our dominant position in the Siberian Ginseng (Acanthopanax) market, expand our Siberian Ginseng (Acanthopanax) cultivating bases and improving the quality standards of Siberian Ginseng (Acanthopanax), and extend our distribution network through internal distribution channels reforms. Our expansion strategy will require the continued retention and investment of our earnings from operations and, we believe, additional funding from private debt and equity financing. In general, the commitment of funds to research and development, or acquisition or construction of plant and equipment tends to impair liquidity. However, we believe that because of the upward trend in our revenues in recent years, even if this trend levels off, our income from continuing operations coupled with such additional financing, if required, should provide sufficient liquidity to meet our expansion needs.

Lack of attention to detail:

Also notice that the company included an incorrect statement regarding its internal controls:

As of April 30, 2010, (should probably be April 30, 2011) we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act”). Accordingly, based upon that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective ( see below: should be not effective) to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and regulations.

On February 3, 2011, we filed a Form 8-K, Item 4.02, Non-Reliance on Previously Issued Financial Statements or A Related Audit Report or Completed Interim Review, in connection with an error in calculating the weighted average common stock outstanding on a diluted basis as of October 31, 2010 which affected the calculation of the diluted earnings per share. Accordingly, based upon that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and regulations. Based on the situation, we added another person to review and check our quarterly report before providing to auditor. This is to minimize any errors or omissions related to our report.

First Quarter 2011 Highlights:

• Net sales increased 32.1% year-over-year to $22.6 million
• Gross profit increased 45.8% to $13.8 million from $9.5 million in the first quarter of fiscal year 2010
• Gross margin increased to 61.1% from 55.3% a year ago
• Net income rose 48.3% to $10.9 million or $0.29 per diluted share

"We are pleased to report strong financial performance for the first quarter and begin fiscal 2011 on a positive note. We achieved substantial revenue and net income growth. This was driven by strong market demand which allowed us to increase in our average selling prices, thus enhancing our overall gross margin," said Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic.  "In the first quarter of 2011, we focused on our marketing efforts to further strengthen demand for our products and increase market acceptance. Our core ginseng series remains very competitively priced.  In addition, our new products have been well accepted in the market and continue to increase their overall revenue contribution."

"We are confident that we will achieve our goals for fiscal 2011 and reaffirm our previously disclosed fiscal 2011 guidance for revenue in the range of $70.6 million to $71.7 million, and after-tax net income of $22.9 million to $23.2 million.  These figures represent a 28% to 30% increase from fiscal 2010 revenue of $55.2 million and net income of $17.9 million. Our guidance does not take into account the impact of any potential acquisitions."

Expansion Strategy

We believe the market for pharmaceutical products in China is growing rapidly. Our growth strategy involves capturing as much of this market as possible during this rapid growth phase. To implement this strategy we plan to strengthen our dominant position in the Siberian Ginseng (Acanthopanax) market, expand our Siberian Ginseng (Acanthopanax) cultivating bases and improving the quality standards of Siberian Ginseng (Acanthopanax), and extend our distribution network through internal distribution channels reforms. Our expansion strategy will require the continued retention and investment of our earnings from operations and, we believe, additional funding from private debt and equity financing. In general, the commitment of funds to research and development, or acquisition or construction of plant and equipment tends to impair liquidity. However, we believe that because of the upward trend in our revenues in recent years, even if this trend levels off, our income from continuing operations coupled with such additional financing, if required, should provide sufficient liquidity to meet our expansion needs.

GeoTeam® Note: We calcualte that 2010 vs. 2009 EPS numbers were $0.12 vs $0.15. This was a very poor fourth quarter showing for the company and underscores the problem we have had with CBP: EPS growth inconsistency. We also need to be aware that CBP is seeking to raise capital. The company will likely issue fiscal 2011 guidance in its fiscal 2010 year end press release.

Morning Update:

Fourth Quarter 2010 Highlights

• Net sales grew 15.2% year-over-year to $16.7 million
• Gross profit increased 13.3% to $9.1 million from $8.0 million in the fourth quarter of fiscal year 2009
• Gross margin was 54.4%
• Net income was approximately $5.6 million or $0.14 per diluted share, as compared to approximately $5.8 million or $0.15 per diluted share a year ago
• New products, including Qing Re Jie Du Oral Liquid, Compound Schisandra Tablets, and Ginseng and Deer Antler Extract accounted for 8.2% of gross sales in the fourth quarter of fiscal 2010

Fiscal Year 2010 Highlights

• Net sales rose to $55.2 million, an increase of 27.1% over fiscal year 2009
• Gross profit increased to $29.4 million, up 27.4% from $23.1 million
• Gross margin was 53.3% compared to  53.2% in fiscal year 2009
• Net income rose 20.4% to $17.9 million or $0.44 per diluted share, as compared to $14.8 million or $0.41 per diluted share in fiscal year 2009
• Introduced three new products: Qing Re Jie Du Oral Liquid, Compound Schisandra Granules and Deer Antler Extract, which together accounted for approximately 3.0% of gross sales in 2010
• In July 2010, the Company's common stock began trading on NYSE AMEX market under the symbol "CBP"

"We are pleased to report double digit revenue and net income growth in fiscal year 2010. This fiscal year, we maintained a leading market position with our Siberian Ginseng product series and successfully introduced several new products, including Compound Schisandra Tablets, which strengthens our offering in the nerve-regulation and depression treatment segment," said Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic. "During the year, we experienced increases in average selling prices of several of our products, reflecting the continued strong demand for our all-natural plant based remedies."

Business Outlook

The market demand for pharmaceutical products in China is rapidly growing and China Botanic's growth strategy focuses on capitalizing on such opportunity through new product introductions, marketing efforts to gain additional market share and a larger distribution network. For fiscal 2011, the Company estimates net sales and net income to grow at 28% to 30%.  Excluding any non-cash, non-operational gains or expenses, the Company expects fiscal 2011

• net sales of $70.6 million to $71.7 million
• net income of $22.9 million to $23.2 million

The Company experiences seasonality in its business, which is strongest in the first and fourth quarter and softer in the spring and summer season or the second and third quarter. Additionally, the Company's financial guidance also reflects its plan to continue to expand its sales and distribution network to drive growth in market share and to increase R&D spending on its pipeline projects.

"In 2011, we expect to see strong growth in revenue as a result of increased market acceptance and awareness of the benefits of our Siberian Ginseng Series in treating depression and nerve-regulation. We also anticipate many of our products will be listed in the reimbursement catalog of essential medicine for health insurance and we expect to grow as the PRC government moves forward with its Health Reforms in 2011," said Mr. Li. "We will continue to present our product offering at international pharmaceutical trade shows and conventions as they present outstanding opportunities to showcase our products to an international audience. In fiscal 2011, we anticipate continued sales growth from China and expansion into the overseas market."  

GeoTeam® Note: The CBP guidance works out to about EPS of $1.20. We are concerned that the company will raise funds at depressed P/E levels, but this strong guidance does give them room to still grow fiscal 2011 EPS, post dilution.  We would also like to know if guidance includes a capital raise assumption.

HARBIN, China, Dec. 21, 2010 /PRNewswire-Asia/ -- China Botanic Pharmaceutical Inc. today announced that the Company has made considerable progress in its efforts to comply with the requirements of Article 404 of the Sarbanes-Oxley Act ("SOX 404") for fiscal year 2010.

As announced earlier on May 27, 2010, China Botanic engaged PricewaterhouseCoopers ("PwC") to review its internal controls and to provide the corresponding recommendations for gaps/issues noted for fiscal year 2010. Since then, the Company has undergone four rounds of testing and improvements of its internal controls based on PwC's recommendations. Additional details on this ongoing process and the interim results of the initiative will be published in the Company's annual report for its fiscal year ended on October 31, 2010.  

"We are committed to good corporate governance, and our SOX 404 compliance program is an important element in strengthening internal controls," said Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic. "To-date, all noted deficiencies are being remediated. Additional details on the internal control remedial actions will be published in the Company's annual report for its fiscal year ending on October 31, 2010. Management has established the necessary procedures to further enhance the relevant areas, and it is our goal to be fully compliant by the end of our fiscal 2011 as required by regulation. "

HARBIN, China, Dec. 14, 2010 /PRNewswire/ -- China Botanic Pharmaceutical Inc. today announced that as of fiscal year ending October 31, 2010, the Company's new all-natural anti-depressant and nerve regulation product - Compound Schisandra Tablets ("Schisandra Tablets"), a single plant based medicine, has achieved sales of RMB 3.0 million (or $0.5 million) since its launch in July 2010. The sales are in line with management's original estimates.

 CBP to offer shares despite having a $28.7 million cash balance.

Third Quarter Fiscal 2010 Highlights and Recent Events

• Net sales grew 43.8% year-over-year to $9.3 million.
  
• Gross profit increased 32.7% to $4.6 million from $3.5 million in 2009.
  
• Gross margin was 50.1%.
  
• Net income rose 115.8% to $1.5 million or $0.04 per diluted share, as compared to $0.7 million or $0.02 per diluted share in 2009.

 "Our third quarter sales and net income are historically modestly lower as compared to those in the first two quarters due to seasonality of our product portfolio," said Mr. Shaoming Li, the Chairman and CEO of Renhuang. "Demand for our products often peaks in the fourth quarter, which represents the start of the flu season. Despite the third quarter being a historically slow quarter, we are pleased with the year-over-year growth in net sales and net income. It is also pleasing to report that our recently introduced products, Banlangen Granules and Compound Honeysuckle Granules, have been key drivers supporting our sales growth and strong margins."

Outlook - Affirming Fiscal 2010 Guidance

• Net sales in the range of $54.7-$55.6 million, which represents a 26% to 28% increase over reported revenues of $43.4 million in fiscal year 2009.
  
• Net income, excluding any non-cash, non-operating gains and expenses (such as the change in fair market value of warrant liability), to be in the range of $18.6-$18.9 million, up 26% to 28% from net income of $14.8 million in fiscal year 2009.

Fourth quarter sales and net income are expected to exhibit strong growth, as it is historically our outstanding quarter with peak sales primarily driven by the beginning of the flu season.

GeoTeam® note: 

It appears that fourth EPS comparisons may be flat.  Consistent EPS growth has been one of our major issues with this company.  Applying the mid point of the 2010 year end net income guidance implies fourth quarter net income will reach $6.5 million or EPS of $0.17. CBP reported 2009 fourth quarter EPS of $0.16.

Remains on the GeoSpecial for investors who understand that RHGP has historically experienced choppy quarters.  In line with this opinion, we are not sure that company guidance is good enough to make the stock skyrocket much past its book value per share of $1.61.  Given the 2010 annual net income guidance of about $18.5 million, we are left with about $8 million (or EPS of $0.20) to be spread between the last two quarters.  In comparison, EPS for those two quarters totaled $0.18 in 2009. This is the issue we have always had with RHGP. Due to nature of its product portfolio, it just can't seem to put together consistent quarterly EPS growth, which may ultimately limit P/E expansion. Regardless, we would like to think that RHPG could at least experience some P/E expansion, especially as it continues to take steps move to a senior exchange.

We should note that some GeoInvesting members who are close to the RHGP story feel that the company's guidance is conservative and that the company is addressing seasonality issues. 

Liquidity seems intact:

RHGP gets an A+ for making it quite clear that it will not need to tap the equity markets:

"We believe our cash and cash equivalents are adequate to satisfy our working capital needs and sustain our ongoing operations for the next twelve months.""We have capital commitments for purchase of land use right, property and equipment and production patents from a related party, Stock Co, of approximately $9,655,051. In addition, on April 10, 2010, the Company, through its wholly own subsidiary, Harbin Renhuang Pharmaceutical Co. Ltd, entered into a Property Sale and Purchase Contract (“Purchase Agreement”) with Hongxiangmingyuan of Heilongjiang Yongtai Company, to acquire two office floors in a building located in the Nangang District, Harbin, PRC, for total consideration of $5,612,306. Pursuant to the Purchase Agreement, a payment of $3,928,614 was made in April 2010, and the final payment of approximately $1,683,692 is due by December 20, 2012, at which time title to the property will be transferred to the Company. We expect to fund these commitments with cash provided from operations."

We shall see if RHGP gets an A+ for execution and stays true to this train of thought...

Second Quarter Fiscal 2010 Highlights and Recent Events

    -- Net sales grew 39.0% year-over-year to $12.1 million.
    -- Gross profit increased 44.5% to $6.2 million from $4.3 million in 2009
       while gross margin increased to 51.4% from 49.4% a year ago
    -- Net income rose 63.0% to $3.4 million or $0.09 per diluted share, as
       compared to $2.1 million or $0.06 per diluted share in 2009
    -- New products, Banlangen Granules and Compound Honeysuckle Granules,
       accounted for nearly $3.7 million in sales in the quarter
    -- Appointed three new independent directors, strengthening corporate
       governance practices

"Renhuang continued to deliver robust growth in the second quarter of fiscal 2010 with strong increases in revenue and earnings," said Mr. Shaoming Li, the Chairman and CEO of Renhuang. "We are pleased with the rapid market acceptance of our recently introduced products, Banlangen Granules and Compound Honeysuckle Granules, which were key drivers behind the sales growth and margin expansion to-date. Our operating leverage remained robust in the second quarter with a nearly 400 basis point operating margin increase year-over-year despite higher operating expenses."

Outlook - Affirming Fiscal 2010 Guidance

Renhuang is affirming its fiscal 2010 guidance for net sales in the range of $54.7-$55.6 million, which represents a 26% to 28% increase over reported revenues of $43.4 million in fiscal year 2009. The Company continues to expect fiscal 2010 net income, excluding any non-cash, non-operating gains and expenses (such as the change in fair market value of warrant liability), to be in the range of $18.6-$18.9 million, up 26% to 28% from net income of $14.8 million in fiscal year 2009.

Third quarter sales and net income are historically modestly lower as compared to those in the first two quarters due to seasonality of Renhuang's product portfolio. Demand for the Company's products often peak in the fourth quarter, which represents the start of the flu season.

In the second half of fiscal 2010, Renhuang continues to expect the commercial launch of its Qing Re Jie Du Oral Liquid, a TCM for the treatment of influenza and upper respiratory infections, and Badger Oil, a natural medicine for the treatment of burns. The new product introductions and continued market penetration of Renhuang's current product portfolio are expected to drive revenue growth for the remainder of fiscal 2010. The Company anticipates gross margin to remain above 50% during second half of fiscal 2010. Operating expenses are expected to increase in the second half of the fiscal year, with higher sales and marketing expenses to support new product roll out and increased R&D expenses as the development pipeline advances and grows.

"Renhuang completed a very strong first half performance with significant momentum for the remainder of fiscal 2010," added Mr. Li. "Increased market acceptance of our portfolio of natural products and introduction of new products are expected to continue the Company's strong pace of growth in the coming quarters. In addition to focusing on organic growth, Renhuang continues to actively evaluate external growth opportunities, including the potential acquisition of complementary operations and overseas expansion

First Quarter 2019 excerpts:

Although we anticipate that the cost of goods will increase due to inflationary price increases, we do not believe that such increases will be material for fiscal year 2010. We anticipate that beyond 2010, our price for raw materials and other production costs will continue to increase due to inflation. If our costs of goods increase, this may have a negative effect on our net income because, due to market conditions and competitive conditions, we may not be able to increase the price for our products in proportion to the increase of our costs of goods sold.

We believe our cash and cash equivalents are adequate to satisfy our working capital needs and sustain our ongoing operations for the next twelve months.

The Company increased the price on Shengmai Granules based on continued strong sales volume and market demand for the product.

"While we had assumed a price increase for Shengmai Granules in our outlook, the ability to quickly implement this price increase reinforces our confidence in the fiscal 2010 guidance," said Mr. Shaoming Li, Renhuang's Chairman and CEO. "Renhuang remains committed to delivering the best value proposition for our customers by providing high quality healthcare products and investing in the development of new products to meet patient needs."

On February 16, 2010 we coded Renhuang Pharmaceuticals as a GeoSpecial. Spurred partly by the nudges from GeoInvesting.com followers, we took this position largely due to a belief that recent events could give a short-term lift to RHGP shares:

• The company has expressed an interest in increasing communication with investors as evidenced by the engagement of an IR Firm's services.
• The company is now in compliance with most listing standards which could lead the way to the NASDAQ or NYSE/AMEX.
• RHGP shares sell for less than two times its book value per share of $1.40.
• RHGP shares sell at a tax adjusted P/E of 6.57.
• RHGP is debt free.
• RHGP operates in a favorable sector: (Source: 2009 10K)
  
  • Pharmaceutical Industry Growth. We believe the market for pharmaceutical products in China is growing rapidly driven by China’s economic growth, increased pharmaceutical expenditure, an aging population, increased lifestyle-related diseases, government support of the pharmaceutical industry, as well as the increased availability of funding for medical insurance in China. We expect these factors to continue to drive industry growth.
    
  • Production Capacity. We believe much of the pharmaceutical market in China is still underserved, particularly with respect to treatment of depression, melancholy and nerve regulation. In 2009 the demand for our products that treat depression, melancholy and regulate nerves, increased and we were able to increase our production of such products to capture much of this growth. We believe our facilities with the ability to manufacture 18 dosage forms and over 200 products will allow us to capture future market growth and increase our revenue and market share accordingly.
    
  • Perceptions of Product Quality. We believe that rising health concerns in China have contributed to a greater demand for health-care products with perceived health benefits. We believe many consumers in China tend to prefer natural health care products with, we believe, limited side effects. Accordingly, we believe our reputation for quality and leadership position in a number of our products allow our products to command a higher average selling price and generate higher gross margins than our competitors.

We do have some questions regarding EPS growth inconsistencies,  due partly to the seasonality of RHGP business which tends to be stronger in its first and fourth quarters.  This situation could limit P/E expansion.  Also, the company will likely require capital to implement its business plan leaving the door open for dilution.  We will attempt to interview management for a clarification on these issues. If  the RHGP plan can deliver consistent EPS growth then this story may have serious long-term legs.

We expect the demand for our products will continue to increase as a result of gaining greater market acceptance, in particular the benefits of our Siberian Ginseng (Acanthopanax) Series in treating depression and nerve-regulation. Further, we believe many of our products will be listed in the reimbursement catalog of essential medicine for health insurance. In addition, we anticipate that we will be successful in becoming one of China’s essential medicine suppliers as the PRC government moves forward with its Health Reforms in 2010.

Expansion Strategy

We believe the market for pharmaceutical products in China is growing rapidly. Our growth strategy involves capturing as much of this market as possible during this rapid growth phase. To implement this strategy we plan to strengthen our dominant position in the Siberian Ginseng (Acanthopanax) market, expand our Siberian Ginseng (Acanthopanax) cultivating bases and improving the quality standards of Siberian Ginseng (Acanthopanax), and extend our distribution network through internal distribution channels reforms. Our expansion strategy will require the continued retention and investment of our earnings from operations and, we believe, additional funding from private debt and equity financing. In general, the commitment of funds to research and development, or acquisition or construction of plant and equipment tends to impair liquidity. However, we believe that because of the upward trend in our revenues in recent years, even if this trend levels off, our income from continuing operations coupled with such additional financing, if required, should provide sufficient liquidity to meet our expansion needs.

Source: 2009 10K