China Biologic Products (NASDAQ:CBPO)

Rodman and Renshaw on CBPO                               7/12/2011

Government Cut to Impact Plasma Supply

Yesterday, China Biologic Products announced that the Guizhou Provincial Health Department has issued a "Plan for Guizhou Provincial Blood Collection Institutional Setting (2011-2014)”. According to the plan, the local government is expected to shut down eight of the existing 18 plasma collection centers by the end of July 2011. China Biologic has six active plasma collection centers in the province and three of them are expected to be closed, according to the new policy. Currently, these three plasma collection centers contribute 24.5% of total volume collected by China Biologic in 2010. Following the potential shutdown, China Biologic is expected to have a total of 12 plasma collection centers, including two recently approved centers in Shandong Province. So far, there is no further information regarding the implementation of the policy, the compensation the government may provide to each affected company, as well as the fate of existing inventory at the affected centers during the required 90-day quarantine period. Of note, China Biologic owns the six active plasma collection centers in Guizhou Province through a 54% indirectly owned subsidiary, Guizhou Taibang Biological Technologies Co. Contribution to revenue is anticipated to be reduced by up to 24.5%. The company plans to appeal the implementation of the plan.

Pending a thorough re-evaluation of our model, once the impact of the shutdown is quantifiable, we are placing our rating and target price Under Review. Our previous rating was Market Outperform with a 12-month target price of $16/share.


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This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

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Notice Regarding Privacy and Confidentiality:

Rodman & Renshaw, LLC reserves the right to monitor and review the content of all e-
This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member SIPC.
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Rodman and Renshaw on CBPO                         5/10/2010

Solid Quarter, Outlook Maintained

Key Points

• China Biologic reported $34.5MM in revenues in 1Q11, representing a 27% growth YoY, beating our estimate of $30MM.
• The company’s net income in 1Q11 was $6.3MM, or $0.23 per diluted share, and adjusted non-GAAP net income was $8MM, or $0.31 per diluted share, slightly higher than our estimate of $0.30 per diluted share.
• Cash position decreased from $65MM in 4Q10 to $56MM in 1Q11, partly due to a $7.6MM acquisition of the non-controlling interest, as well as an $8MM increase in accounts receivables and inventories.
• We maintain our Market Outperform rating and our 12-month target price of $16/share.

Growth Mainly Driven by Volume Increase

China Biologic reported unaudited top line of $34.5MM in 1Q11, higher than our estimate of $30MM. Revenue increase was mainly driven by the volume increase of the key products human albumin and IVIG, as well as the price increase of the specialty IgG. Going forward, pricing pressure remains high for albumin and IVIG with limited upside on volume in the short term. However, the supply of specialty IgG is expected to improve in 2H11. In addition, Human Prothrombin Complex Concentration and human coagulation Factor VIII are expected to receive the SFDA approval in 2H11 with material contribution anticipated by YE11. Therefore, we maintain our 10% growth projection for the rest of 2011 and our estimate of $158MM in revenue for 2011.

Tax Expenses Increased, Potential to Re-Obtain Preferential Rates in the Near Term

China Biologic has incurred an increase of the statutory tax rate from 15% to 25% for both Shandong Taibang and Guizhou Taibang starting in 2011. As a result, the effective tax rate changed from 21% in 2010 to 30% in 1Q11. Accordingly, we have adjusted our tax rate projection from 20% to 30% for 2011 – 2013. However, the company is in the process of re-application for the preferential tax rate of 15%. If approved, the 15% tax rate is applicable retroactively to the beginning of 2011, bringing in a potential upside to our EPS estimates. Our estimate for 2011 net income is $31MM including non-cash items. Based on the $2MM non-cash adjustment for 1Q11, our non-GAAP projection of 2011 net income is approximately $40MM.

Cash Generation Less Robust

China Biologic reported $56MM in cash in 1Q11, a decrease from $65MM in 4Q10. The decrease in cash is mainly due to one-time expenses of $7.6MM related to the acquisition of non-controlling interest and a $5.6MM dividend payment to non-controlling shareholders, as well as increases of $5MM in inventories and $3.3MM in accounts receivables. Due to the new marketing strategy of direct sales to hospitals implemented in 2H10, the company has incurred increasing amount of accounts receivables and Days Sales Outstanding are expected to increase gradually. Additionally, changing of the lot approval process by the government is expected to increase Days Inventory on Hand going forward. Therefore, we believe the cash conversion cycle is expected to increase and cash generation would be less robust during the transition period.

Valuation

We maintain our Market Outperform rating with a 12-month target price of $16 per share. The price target is derived from an NPV analysis of future cash flows with a 15% annual discount rate and a 5% terminal growth rate.

Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on CBPO                                                3/16/2011

Long Term Potential but a Short-Term Bump

Key Points

• China Biologic filed a Notification of Late Filing for 10K due to reevaluation of non-cash items by the newly appointed auditor, KPMG
• Unaudited revenues in 2010 were $140MM, lower than our estimates of $147MM
• Estimated adjusted non-GAAP net income in 2010 beat our estimates and beat the company’s upper end guidance
• Top line growth may slow to 10% in 2011 (from 17%), in our opinion, but could rebound to 20% in 2012 and beyond
• We maintain our Market Outperform rating but lower our 12-month target price from $17 to $16/share due to reduced anticipated free cash flow to equity

Big Four Costs Extra Time – But Worth the Waiting

China Biologic appointed KPMG as its independent auditor on December 22, 2010. It is a dedicated movement to provide high-standard financial reports. Reevaluation by KPMG on warrants and deferred tax liabilities has delayed the filing report.

Top Line Growth Slows Down in the Near Term…

China Biologic reported unaudited top line of $140MM in 2010, lower than our estimates of $147MM and slightly lower than the lower end of the company’s guidance of $142MM. Revenue decrease is due to increasing pricing pressure on albumin and IVIG. Imported albumin is taking market share with competitive pricing. Price of domestic albumin is expected to drop 25% in 2011. Meanwhile, IVIG is also losing pricing power and is expected to flatten out in 2011. Therefore, top line growth is anticipated to decline to 10% in 2011, in our view.

…but is Expected to Rebound in the Future

China Biologic recently obtained approvals to build two more plasma collection stations. Once completed, the company would own a total of 18 collection stations, increasing plasma collection capacity from 600 to 660 tons. These two stations are expected to have material contribution in 2012. Secondly, a new facility is expected to be built in 2011 – 2012 with a capacity of 1,000 tons (vs. the current 400 tons). Thirdly, launches of new products Factor VIII and PCC could have material contribution in 2012. Lastly, China Biologic is planning to sell an increased portion of its products directly to hospitals, bypassing distributors, in order to improve margins. The direct institutional sales are expected to become mature in 2012. Taken together, we project a 20% top line growth in 2012 and beyond

Valuation

We maintain our Market Outperform rating but lower the 12-month target price from $17 to $16 per share. The price target is derived from an NPV analysis of future cash flows with a 15% annual discount rate and a 5% terminal growth rate.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on CBPO                   1/11/2011

Additional Grip to Maintain Controlling Interest 

Key Points: 

• China Biologic acquired the remaining 10% ownership of Guiyang Dalin Biologic Technologies for $7.5MM. 
• The acquisition increased China Biologic’s ownership from 49% to 54% of Guiyang Qianfeng Biological Products, the operating subsidiary of Dalin. 
• Potential dispute of China Biologic’s controlling interest in Qianfeng still exists. 
• We maintain our Market Outperform rating with a $17 target price.   

Increased Ownership to Retain Active Control 

Dalin has 54% ownership of Qianfeng, one of the major plasma companies with an approximately 8% of total market share in China. After the acquisition, China Biologic retains its controlling interest in Qianfeng with increased equity of 54% from the previous 49%. With consolidated revenues, China Biologic is the largest non-government-owned plasma company in China.

Dispute on Potential Ownership Dealt in the Past 

In May 2007, 9% of Qianfeng shareholders (Jie’an) disagreed with the majority shareholders on a $7.5MM capital raise and did not waive their rights of first refusal. Jie’an brought a law suit to claim additional shares, which could reduce Dalin’s equity interest in Qianfeng to 41.3% from current 54%. The high court of Guizhou ruled in favor of China Biologic and denied Jie’an’s claim in October 2010. Subsequently, Jie’an appealed to the Supreme Court in Beijing. Given previous court precedents, we believe China Biologic has a favorable chance to win the case and to retain its controlling interest in Qianfeng.

Potential Share Increase in Other Minority Interests 

China Biologic has a 35% equity interest in Xi’an Huitian Blood Products. Given the track record of successful acquisitions, we believe the company is capable of executing additional equity increase on Huitian at an appropriate time for the right price.

Maintaining Our Market Outperform Rating and $17 Target Price 

We maintain our projections, as well as Market Outperform rating and a 12 – month target price of $17 per share. The price target is derived from an NPV analysis with a 15% annual discount rate and a 5% terminal growth rate.


Notice Regarding Privacy and Confidentiality: 


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on CBPO

Key Points: 

• China Biologic Products reported $36MM in revenues and $13.7 MM net income to controlling interest for 3Q10, or $0.53 per diluted share. Top line revenues are slightly higher than our estimate of $34MM, and the bottom line beats our adjusted estimate of $0.41 per diluted share. 
• Management reiterated guidance of $142MM - $149MM in revenue (19 - 25% organic growth) and adjusted net income of $34MM - $36MM for 2010. 
• Future growth potential could be driven by new product launches (2011), as well as expansion of plasma collection. 
• The company ended 3Q10 with a cash position of $64.6MM, an increase of $8MM from 2Q10. 
• We maintain our growth assumptions but increase 2010 revenues to $147MM from $145MM and EPS to $1.76 from $1.51, to reflect strong results in 3Q10. 
• We reiterate our Market Outperform rating with a $17 target price. 

Strong Quarter, Scheduled Annual Maintenance Has Minimum Impact 

During 3Q10, China Biologic Products suspended manufacturing as scheduled for approximate 45 days and 30 days, respectively, at two major operating facilities. This scheduled annual maintenance and inspection process, due to management’s careful planning – had a minimum impact on the company’s revenues. In 3Q10, the company experienced organic revenue growth of 33% year over year. Gross margins remained above 76%, although slightly lower than 78% in 2Q10. GAAP net income benefited from a $3.8MM non-cash gain related to the change of fair value of derivative liabilities. We continue to expect non-cash charges/gains to be incurred until these securities are converted into common stock. 

Pricing Power Continues but Facing Future Pressure 

Strong revenue in 3Q10 was due to price and volume increases. Sales of IVIG accounted for 36% of total revenue in 3Q10, which was partly attributable to a 27% price increase YoY. Hep B continues to enjoy 56% price increase in 3Q10 after experienced a 434% price increase in 2Q10. However, the company’s major product albumin (49% of total revenue) experienced 4.3% price decrease due to competition from imported albumin. Although sales volume increased, albumin revenue was flat in 3Q10. Human IgG also experienced 12% decrease in price. In our opinion, pricing power continues to contribute to growth in the near term. However, long term growth is driven by expanding plasma supply and introduction of new plasma products into Chinese market. We project annual sales of $147MM in 2010 and $254MM in 2013.

Reimbursement Awaits Government Decision 

Over 85% of company’s sales are expected to be covered by National Insurance Catalog in China as Class B drugs. Unlike Class A drugs, which are reimbursed 100%, Class B drugs reimbursement policies are determined by each province. To date, the regional governments have not provided guidance on reimburse rate of each drug. 

Allegation Investigation Under Process 

China Biologic Products appointed the Special Committee of independent directors to investigate allegation against Mr. Lam, the CEO of the operating subsidiary Shandong Taibang. Special committee has not disclosed investigation process since its commencement in March 2010. 

Maintaining Our Market Outperform Rating and $17 Target Price 

We increased our revenue projection to $147MM in 2010 and $46MM in net income to the controlling interest ($36MM after adjusted for non-cash change in fair value of derivative liabilities) for 2010. We maintain our Market Outperform rating and a 12 – month target price of $17 / share. The price target is derived from an NPV analysis with a 15% annual discount rate and a 5% terminal value growth rate.

Notice Regarding Privacy and Confidentiality: 

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.