China-Biotics (NASDAQ:CHBT)

The GeoTeam® participated in the China-Biotics (NASDAQ:CHBT) 2009 first quarter conference call. 

Conference Call Highlights:

• Expects full year fiscal 2010 revenues to grow at least 50% to $81.3 million
• As the stock may be perceived to be currently "undervalued", investors voiced concerns over dilution related to the potential issuance of shares to complete future acquisitions.  The Company did a thorough job addressing this concern, implying the possibility of using cash over stock to complete an acquisition.  Furthermore, if shares were issued there is still a good chance that a transaction will be accretive to earnings per share.

The GeoTeam® listened the China-Biotics (NASDAQ:CHBT) 2009 fourth quarter conference call.  On the whole, the company was very bullish regarding its future growth prospects.  A good deal of the optimism surrounding the China-Biotics story is the anticipated impact from its new manufacturing facility which is expected to begin to make a meaningful contribution to revenue in the third quarter of fiscal year 2010.

Strategy Going Forward:

1.  Launch the new manufacturing facility, which at full capacity is forecast to generate $110 million in revenues with gross margins of approximately 70%.

2.  Sign new bulk additive customers in anticipation of increased production capacity.  New customer agreements have increased 45% from 11 to 16.  China-Biotics is currently in negotiations with 200 additional companies.

3.  Develop new consumer probiotics products.

4.  Increase the "Shining" brand presence in retail outlets.

Recall that GeoBargain's® generally require an earnings per share growth rate of at least 30%.  Even though full year ending March 2010 non-GAAP EPS growth rate is forecast to be approximately 20%, we are still coding China-Biotics as a GeoBargain®.  This is due to the fact that analyst estimates for the third and fourth quarters translate into an average EPS growth rate of 59%.

A potential caveat to the story is the company's recent S3 Filing allowing it to potentially raise up to $80 million.   This could open the door for future earnings per share dilution, but that depends on how the funds are used.