Executives
Bill Zima - Integrated Corporate Relations
Tony Liu - Chairman and CEO
Lily Li - COO and Acting CFO
Wilfred Chow - VP of Finance
Analysts
Will Lyons - Westminster Securities
Julie Chen - Brean Murray
Paula Witman - CRT Capital Group
Mat Delfarno - Hue Street Capital
Mustafa Siddique - Springbok Capital
Shaumo Sadhukhan - Lotus Partners
Sandeep Falook - Mordrock Capital
TRANSCRIPT SPONSOR |
American Oriental Bioengineering, Inc. (AOB) Q4 2006 Earnings Call March 12, 2007 4:30 PM ET
Operator
Good day, ladies and gentlemen, thank you for holding. Welcome to the American Oriental Bioengineering Incorporated's Fourth Quarter Full Year 2006 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instruction will be provided at that time to queue for questions. Although, I would now like to remind everyone that today's conference is being recorded. And I would like to turn the conference over to Mr. Bill Zima with Integrated Corporate Relations. Please go ahead, sir.
Bill Zima
Thank you, and welcome everyone to the AOB's 2006 fourth quarter conference call. On the call today is Tony Liu, Chairman and Chief Executive Officer; Ms Lily Li, Chief Operating Officer and acting CFO, Wilfred Chow, Vice President of Finance, and Flora Hua, who is the company's Controller.
Before we get started, I'd like to mention that this conference call may contain in addition to historical information forward-looking statements about AOB within the meaning of the Federal Securities laws. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions, and other statements other than statements that are historical in nature.
These forward-looking statements are based on current management's expectations and are subject to risks and uncertainties that may result in expectations not being realized and may cause actual outcomes to differ materially from the expectations reflected in these forward-looking statements.
Potential risks and uncertainties include product and service demand acceptance, changes in technology or economic conditions, the impact of competition and pricing, the impact of government regulation and other risks contained in the statements filed from time to time with the SEC.
All such forward-looking statements, whether written or oral, whether made by or on behalf of the company, are expressly qualified by the cautionary statements and other cautionary statements which accompany the forward-looking statements.
Because forward-looking statements are subject to risks and uncertainties, we caution you not to place undue reliance on these. Forward-looking statements that are made during this conference call speak only to the date, and all oral or written forward-looking statements are qualified by these statements.
For more information on this matter, we encourage you to review the company's most recent 10-K filing.
With that out of the way, I'd now like to turn the call over to Tony Liu, and Wilfred Chow who will translate on behalf of Tony.
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Tony Liu
[Translated] Good afternoon and thank you for joining us for our fourth quarter 2006 quarterly conference call. I would like to provide you with a strategic overview of our business. Lily Li will then discus our accomplishment over the course of 2006 financial year. Wilfred Chow will then take you through our financial results, and Lily will conclude by discussing some of our strategic initiatives and will provide you with our financial forecast for the first quarter and the fiscal year 2007.
We are pleased to report our best result ever as a public company achieving record revenue, net income for fourth quarter and fiscal year. Our strong financial performance was a result of continuance of our core plant-based pharmaceutical and nutraceutical products, as well as from the contributions of our two acquisitions we made during 2006.
I am pleased to say that we successfully rolled out new products to the marketplace, dramatically expanded our distribution channels and improved our cost structure. These efforts bolstered our leading market position and continued to enhance our margin performance.
We've several strategic initiatives in 2007. The most important of which is to develop a number of products in our portfolio. We intend to pursue this goal through the launch of new products and product line expansion, as well as through our pursuit of acquisitions.
We'll embrace innovation and technology. For example, we'll make a constant effort to strength the quality of our research and development team with additional researchers and scientists. We will increase our intellectual property in China for the new patents, and we intend to register our intellectual property internationally as well.
On the technology side, we also expect to embrace changes in manufacturing technology, which can ultimately strengthen our market position.
We believe our strategic initiative were further AOB's position as a branded cultivator and acquirer of leading consumer healthcare products. We are proud of the work we have accomplished in 2006 and believe we have set the right foundation for continued growth in 2007 and beyond.
We are going to say about 2007 year as innovation and cost effective year, and we believe our strategic initiative will further it will be positioned as a branded cultivator and acquirer of leading consumer healthcare product. And are proud of the work we have accomplished in 2006 and believe we will set the right foundation for the continuing growth in 2007.
We are going to set 2007 as an innovative and cost effective year.
We believe our strategic initiative were further AOB's position as a branded cultivator and acquirer of leading consumer healthcare products. We are proud of the work that we have accomplished in 2006 and believe we have set the right foundation for continued growth in 2007.
Further, Lily will provide additional details about the quarter and then we will be happy to answer questions. Thank you.
Lily Li
Thank you, Tony. As we look at the performance of the company, both, operationally and financially over the past two years, we have made great strides to increase the size and the scale of our operations in China. We successfully completed two acquisitions, which resulted in strong sales and dramatically improved cost structure. The HQPL acquisition that closed in July, substantially broaden of our point of distribution and allow us to sell our products throughout all regions of China.
We acquired this business for a very good price and this acquisition saved us a substantial amount of time and money, (inaudible) and expanding our distribution from the ground up.
We are pleased with its performance as well as its contribution to our revenue and earnings performance in the second half of the fiscal year.
In April, we acquired the GLP business and its product portfolio that includes the Jinji Series of gynecological product. This addition has expanded our product line and increased our distribution channels and greatly enhances our women's health product portfolio.
The improvements, we have made to the business in just eight months of the operations have been significant to our overall results. Total sales in this business have increased from approximately $10 million in fiscal 2005 to $20 million in just eight months of 2006. I am very pleased to say that we materially exceeded our internal estimates for this business.
There are also significant cost savings we achieved he acted as GLP as we streamlined this business and this helped our profitability company wide.
Our products can now be found in over 100,000 distribution points which includes hospitals, pharmacist, clinics, retail outlets and two independent sellers who act as resellers. We'll continue to enhance this important network that we have and during the year we expanded our sales to over 700 professionals who are responsible for servicing these points of distribution and the monitoring the overall market environment.
In December, we completed the re-location of our corporate headquarters to Shenzhen in Southern China near Hong Kong. This move is part of our company's long term growth strategy that will allow us to broaden our presence in the marketplace and better manage our expanding operations. It will also put us in a better position to survey the competitive landscape and evaluate potential acquisitions.
Our company has also been actively involved with new business initiatives that can serve us well in the future with respect to our brand position.
This past November, we were pleased to announce AOBO's participation in a government sponsored program to enhance the development of plant-based pharmaceutical products in order to promote their benefits, not only in China but also potentially abroad as well.
Two of our products, the Cease Enuresis Soft Gel and our Jinji Gel were chosen for this highly selective program, after undergoing a rigorous review process. Our collaboration with the Chinese government highlights the quality of our products and further demonstrates our leadership in the place-based category.
We are pleased that the success of our business combined in our successful listing on the New York Stock Exchange. This was a proud moment for our company. We are proud to be the first traditional Chinese medicine company listed on this prestigious exchange. At this point, I would like to turn the call over to Wilfred, who will review your quarterly and annual financial results. Wilfred?
Wilfred Chow
Thank You, Lily. For the full quarter our net sales increased 107.1% to $40.9 million compared to $19.8 million in the prior year period. Sales of our plant-based pharmaceutical product increased 159.2% to $31.5 million compared to $12.1 million in the fourth quarter of the prior year.
Our leading PBP products include the Shuanghuanglian Injection Powder, Enuresis Soft Gel, UrinStopper Patch and the Jinji Series from our GOP acquisition.
Fourth quarter sales of our plant-based nutraceutical product increased to 28.4% to $9.8 million compared to $7.6 million in the prior year. This increase was fueled by strong sales of our Protein Peptide series.
Gross margin for the fourth quarter increased to 116% to $27.2 million compared to $12.6 million in the prior year. Gross profit margin for the fourth quarter increased to 250 basis points to 65.9% compared to 63.7%. This increase in gross margin was primarily due to the reduction in the cost of good sold as a percentage overall revenue, as well as from the improved operating efficiency across our PBP and PBN businesses.
Selling and marketing expenses increased to $3 million or 7.25% of sales in the fourth quarter compared to $1.2 million or 5.9% of sales in the prior year period. The company increased the total number of employees and compensation to support overall revenue growth.
General and administrative expenses decreased to 120 basis point or 9.5% of sales, compared to 10.7% as payroll and professional fee expenses declined as a percentage of total revenue.
Fourth quarter advertising expenses increased to $6.3 million from $3.1 million, and this was in line with our (inaudible) level of fourth quarter advertising expenses at roughly 15% of net sales.
Operating income for the fourth quarter increased to $13.6 million compared to $6.2 million in the comparable quarter last year. Operating margin increased to 180 basis points to 33.2%, compared to 31.4% in the prior year. The increase was primarily due to the significant increase in annual revenue growth and increased in gross margin offset by higher selling and marketing expenses.
Net income more than doubled to $10.9 million or $0.17 per diluted share, compared to $4.2 million or $0.10 per diluted share in the prior year period. The income tax rate for the company in fourth quarter decreased to 18.1%, compared to 26.2% in the prior year. This decrease was a result of increased revenue stemming from our GLP acquisition, which enjoy 0% tax rate for the first two year beginning with the close of this acquisition in April 2006.
For the fiscal year 2006, net sales more than doubled to $110.2 million, compared to $54.7 million in the prior year. Gross profit more than doubled to $71.9 million, compared to $34.2 million. Gross margin increased to 270 basis points to 65.2%, compared to 62.5% last year.
Net income increased 117.5% to $29.2 million, compared to $13.4 million. Diluted earnings per share increased to $0.46, compared to $0.31 last year.
Looking at our balance sheet, we continued to see improvement at the end of the fourth quarter. Our cash position increased to $87.8 million compared to $71.9 million at the end of the third quarter of 2006, and $57.5 million at the end of 2005. We closed our quarter with a total debt of $11 million.
Fourth quarter inventory increased to $10.7 million, compared to $4.9 million in the prior year. The increase in inventory was a result of the company effort to support continued growth.
Accounts receivable increased to $11.1 million, compared to $8.2 million. DSO decreased to 32 days from 46 days at the end of fiscal year 2005.
Cash flow from operations increased to 29.1%, compared to $11.4 million in the prior year, primarily due to the significant increase in net income. Our working capital increased to $92.3 million, compared to $66.9 million in the prior year.
I'll turn the call back over to Lily.
Lily Li
Thank you, Wilfred. As we look to 2007, we intend to focus and expand on many of the initiative that made us successful in 2006. We will continue to market and promote our leading brand, and this will allow us to further capitalize on growth and solidify our market position.
In short, we intend to remain the leader and capture share in the market. Our branding and the marketing strategies, play an important role in this effort. We will also continue to look for ways to develop new product and introduce product line expansions through the year. Although this is important to our strategy, we will make our moves when the timing is right. Our Yi Mu Cau launch, which is an extension of our Jinji brand, exemplifies our ongoing strategy, and we intend to build on the success of AOB's established, recognized, and trusted brands.
The expansion for our distribution network is another initiative for our business in 2007. Expanding our distribution will drive sales for both existing products, as well as for new product launches.
We believe we have the opportunity to expand our channels of distribution in China beyond our 100,000 points of distribution. We're making strategic investments in our business to ensure of a competitive advantage and ability to grow these patiently.
Innovation is key to our business, especially in R&D. We will continue to hire more researchers and scientists to advance our cost in the field.
We also intend to preserve and further expand our intellectual property, both domestically and internationally. So, we'll extend the number of people working in this area and have them on focused on registering our intellectual property worldwide. In addition, we will also invest in new technology and equipment to increase our production capacity and improve overall efficiency.
AOB will remain committed to continued innovation as it will enhance our overall performance in the future.
On the topic of acquisition, we have nothing imminent to announce but we are evaluating a variety of opportunities. We are a patient team, and we will wait for the right opportunity for our business. In light to our most recent acquisitions, we will make any purchases carefully and with a clear emphasis on driving value for our shareholders. I would like to provide you with some financial guidance for our upcoming 2007 fiscal year.
For the first quarter of fiscal 2007, the company anticipates sales to be in the range of approximately $24 million to $25 million, which represents year-over-year growth of approximately 27%. We expect diluted earnings per share of approximately $0.10. This is based on approximately $66.5 million diluted shares outstanding.
Please keep in mind the following as you consider our first quarter financial guidance. The first two quarter is traditionally the weakest of the year due to seasonality. Then the first quarter of 2006 was exceptionally strong as we benefited from the HSPL acquisition and the sales of Cease Enuresis.
In addition we are growing of a much larger base then we were previously. Luckily we've received some anecdotal feedback, that end users have become slightly more cautious on the intake of pharmaceutical products in general due to recent press reports of the scandal in the [state FDA]. This may have left some sales under table for some of our pharmaceutical products in the fourth quarter. But our consolidated growth rate for fourth quarter and the full fiscal year indicates that the demand for the TCM product will remain very healthy.
We will keep you informed about the issues at the state FDA when necessary. But we continue to be confident that they do not impact AOBOs product locality directly and we feel pretty strongly that ultimately we will benefit as consumers migrate to brands that they trust.
Because we believe, this issue is neutral in nature; we are comfortable giving you full year revenue guidance today. We urge you to focus on full expectations for 2007 for sales to be in the range of $143 million to $147 million.
Over the long-term, we believe there are opportunities to grow this business through new product introductions and the product line extension to our standing channels of distribution and we are confident that this will bolsterer our existing business going forward and does not include acquisitions we have yet to announce.
I will review you with these final thoughts before you go to Q&A. First, the pharmaceutical industry in China is expected to experience sizeable growth largely due to improved living standards, the increase in disposable income, the aging population, the increase in government spending on public healthcare and the increasing participation in the state basic medical insurance systems.
Second, China's nutraceutical industry is also expected to experience healthy growth in the years ahead as a result of the public's heightened awareness and understanding of the connection between diet and health. The aging population, rising healthcare costs and the trend toward preventive healthcare bodes well for us. Third, we believe that our strong stable of brands, diverse product portfolio, established sales and marketing networks, favorable cost structure and our highly capable management team will position us well to capitalize on the growth in 2007 and beyond.
This concludes our prepared remarks for today. We look forward to updating you on our developments in the coming quarters. At this time, I would like to open up the call for any questions you may have. Thank you.
Question-and-Answer Session
Operator
(Operator Instructions). We will go first to Will Lyons with Westminster Securities.
Will Lyons - Westminster Securities
Hi Lily, hi Tony.
Lily Li
Hi.
Tony Liu
Hi.
Will Lyons - Westminster Securities
Congratulations on a great quarter.
Lily Li
Thank you, Will.
Will Lyons - Westminster Securities
I have a couple of questions, just general questions. I will get back in the queue and ask some more detailed questions. But, should we expect that your level of selling and marketing expense as well as advertising would be on the selling and marketing side, about 7% and advertising 15% throughout '07 are those expected levels?
Wilfred Chow
I would take this question. The selling and marketing expense is roughly about 7% to 8% of our total sales and amortizing, we try our best to keep it at around 15%.
Will Lyons - Westminster Securities
Have there been any new initiatives on the advertising front or is it just more of what's you have been doing? Obviously it has been very successful.
Lily Li
Thank you.
Wilfred Chow
To clarify your question, again you are asking that will there be any addition initiatives in the selling expenses?
Will Lyons - Westminster Securities
Well, no, just advertising. I know, you had an advertising campaign that is now ongoing, are you making any changes to it. It has been very successful. But will it be the same in '07 as it was in '06, generally speaking?
Wilfred Chow
On the advertising expenses, we are calculating every dollar to make the best use of our overall budget on the advertisement. And the current situation is, we estimate that the sales that is going to be generated from our advertising expenses is going to be as around this ratio. So, we should be able to maintain that at around 15%.
Will Lyons - Westminster Securities
Okay. Tony spoke about R&D, could you give us the numbers. I guess, you just gave this Q4 ‘05 versus Q4 ‘06. You're spending on R&D. Certainly, the acquisitions have brought a lot of new sales, but give us some perspective on R&D please?
Wilfred Chow
R&D currently is less than 1% of our G&A expenses.
Will Lyons - Westminster Securities
Has it been growing, or just been pretty steady quarter-on-quarter?
Wilfred Chow
The total expenses is not reflected in the last quarter yet, but we don't expect that it's going to be a huge jump on the R&D expenses as well.
Will Lyons - Westminster Securities
Okay. Now lastly, and a more general question, have you guys given any specific thought to the possible effect on AOB's earnings of the proposed change in Chinese income tax rule for foreign companies?
Wilfred Chow
Yeah, we believe that we will see a uniform tax rate over time. But certain operating segment of our company may grandfather the concession tax rate in over a five-year period. So, we should be able to enjoy the reduced tax rate.
Will Lyons - Westminster Securities
So, you expect what's in effect now as far as grandfathering will continue.
Wilfred Chow
That's what I now believe.
Will Lyons - Westminster Securities
Right. Okay. Thanks. I'll get back in queue.
Lily Li
Thank you.
Operator
We'll go next to Julie Chen with Brean Murray.
Julie Chen - Brean Murray
Hi, Li, Tony, and Wilfred, how are you?
Wilfred Chow
I'm good.
Lily Li
Hi, Julie. How are you?
Julie Chen - Brean Murray
Quick questions on two things, there are both on your guidance. For the first quarter of 2007, you are guiding to 24 to 25 million, and I know you launched Yi Mu Cau in January. Does this first quarter guidance include any upside, potentially on Yi Mu Cau in terms of sales?
Lily Li
Yes, for this guidance, we include -- GLP include Yi Mu Cau as well.
Julie Chen - Brean Murray
For the first quarter?
Lily Li
Yes, for the first quarter.
Julie Chen - Brean Murray
And so for the full year 143 to 147, you would also include Yi Mu Cau? Is that the right way of thinking, or is that --
Lily Li
[Number] is overall business, so includes every product, every company in the number already.
Julie Chen - Brean Murray
Okay. All right. Thank you very much. I'll move down to the queue.
Lily Li
Thank you.
Operator
We'll go next to with Paula Witman CRT Capital Group.
Paula Witman - CRT Capital Group
Congratulations, Tony, Lily, and Wilfred. A question on the size of your sales force. Can you give us some color as to plan going forward, what your sales force is right now? And then, what you expect it to be at the end of 2007?
Wilfred Chow
We currently have, up to December 31, 2006, we have 736 sales people.
Paula Witman - CRT Capital Group
And then going forward this year, how many do you expect to hire?
Lily Li
With the large size of this year, probably we need more people, sales force. We are expecting these like a 1000 people sales force in the team.
Paula Witman - CRT Capital Group
Sorry, a 1000 people by the end of 2007?
Lily Li
Yeah by end of 2007, we will have a 1000 professionals in the team.
Paula Witman - CRT Capital Group
Okay. And then, can you give us some color on the acquisition team? Are they still 12 people actively reviewing potential acquisitions?
Lily Li
Yeah, now we have two persons more in the team. We added two persons in the team.
Paula Witman - CRT Capital Group
Okay. And how many potential companies are they currently reviewing, are you allowed to tell us that?
Lily Li
Yeah. Actually, we are evaluating several quality company, and we are very interested in the company's quality brand and product portfolio. But at this moment, I don't want to give the specific numbers as such regarding the acquisition.
Paula Witman - CRT Capital Group
Okay. Great. Thank you for your answers.
Lily Li
Thank you, Paula.
Operator
(Operator Instructions) We will go next to [Mat Delfarno] with [Hue] Street Capital.
Mat Delfarno - Hue Street Capital
Good morning. Excuse me, good afternoon rather. Hi, Wilfred, Lily, and Tony.
Lily Li
Hi, Matt. How are you?
Mat Delfarno - Hue Street Capital
I am doing well. Thank you. I was wondering if I could ask you couple of quick questions with regards to just to clarify on distribution. I guess, so you increased 90,000 points of distribution. And that was at July acquisition when it was closed, can you sort of give me a more accurate ramp-up beyond my estimation of how points were actually active in the third quarter and the fourth quarter? When do we expect to see the impact of this and the timing for the first quarter if it is not fully ramped up, so to give me a little bit more inside into that?
Lily Li
First, our actual end point is over a 100,000 [benchmark]. And second, after the (inaudible) on the distribution point for the rest of the year of 2006, we were focusing on integrating and generating revenue from the existing distribution point. So, we were not in rush to extend the number. We want to emphasize the quality of distribution point. So that was our strategy. And looking forward, one of our key strategy is to expand distribution points. So does that answer your question?
Mat Delfarno - Hue Street Capital
Yes. No, the look forward was great, but maybe as how many of those distribution points that you are looking to integrate were integrated for sales in the third quarter? How many were in the fourth quarter? Because I know, it wasn't all at once that just came online. What was the ramp up from acquisition forward?
Lily Li
Okay. I cannot give you specific breakdown of the distribution point for third quarter and fourth quarter. But what I can tell you is in the past quarters, that two quarters, actually we were focusing on integrating the channel. So, we expected the channel to generate real revenue rather than just a channel [there]. [Foreign language].
So if you want to confirm whether or not, we will acquire new distribution channel looking forward. At this point, we don't think we have that kind of plan. That's your question?
Mat Delfarno - Hue Street Capital
Okay. So, you saying of the HQPL possible distribution channels, they are fully integrated at this point?
Lily Li
Yes. That's, correct.
Mat Delfarno - Hue Street Capital
Okay, absolutely understood. Just a follow-up with regards to the previous tax question, what are the expected rates by entity, and just clarify the holiday if you anticipate it being [grandfathered] and if there is no holiday in the appropriate entity, do you expect tax rate to come down? Can you just go down those three entities or if there is any other?
Wilfred Chow
I would like to answer this question. So, we have three operating entities, Three Happiness is located in a high technology zone. So, the current tax rate is 15%.
Mat Delfarno - Hue Street Capital
Okay.
Wilfred Chow
HSPL is an entity that we acquired in September 2004. Their current tax rate is 33%, GLP, this is a subsidiary that we acquired in May 2006. This subsidiary will have 0% tax rate for the first two years and from the third year to the fifth year their tax rate is going to be a 7.5%.
Mat Delfarno - Hue Street Capital
And thereafter?
Wilfred Chow
Thereafter it is going to be 15% a year.
Mat Delfarno - Hue Street Capital
Okay. So, given the current proposed changes to the loss, assuming that the law goes through as it has been sort of publicized to this point; where would those tax rates change for each entity? In another words will Three Happiness go to 25 and HSPL also 25. Can you clarify that?
Wilfred Chow
It is quite early to do that estimate. But I can tell you what I believe is going to be. So, Three Happiness, I believe that we are going to enjoy 15% tax rate because we are located in the high-technology zone. The government will not take out all the tax benefit for the company that is doing well for the economy. HSPL may go down to 25% because of the change in uniform tax rate. GLP should still enjoy two years of 0% tax rate, 7.5% tax rate for the next three years and then it will go back to 15%. The reason for the 15% normal tax rate for GLP was also because they are located in, what they call the western development zone. So, all the companies located there enjoy a 15% tax rate right now.
Mat Delfarno - Hue Street Capital
Okay.
Wilfred Chow
But I'm not quite sure that will change after the uniform tax rate --
Mat Delfarno - Hue Street Capital
Understood, it's completely depending on what gets finalized. But thank you for that clarity. Then let's get to acquisitions real quickly. We know you're not in a hurry, but clarify more what the pipeline is. How many on the shortlist, what are the sizes, where are you in the process, and what has changed if anything about your ability to purchase them and so far what's proven to be fantastic multiples.
Lily Li
So far we cannot see any situation which will change our ability to acquire new businesses. Now we're in the position to evaluate various companies. But we will continue to insist on our criteria. The major one is the new business will be accretive to our current business. But, regarding the size and how many companies we looking at; at this moment we don't want to give this specific information. I am sorry for that.
Mat Delfarno - Hue Street Capital
Okay fair enough. But is it a fair comment, just to make sure in your first part of your response, that acquisition multiples and pipeline and availability has stayed the same, or are you seeing the competitive landscape for acquisition targets to change?
Lily Li
We probably will use some other motto to price it. But, anyway we will have the principles to have the rights (inaudible) acquisition with good price and with great value.
Mat Delfarno - Hue Street Capital
Okay, fair enough. With regards to your plans to sell your products in the US, whether its nutraceutical, pharmaceuticals etcetera; where does that stand and can you sell US drugs through your channel into China? Is that even a possibility? What are your comments both going into the US and possibly using your distribution, or is that completely outlandish?
Lily Li
At this moment, I only want to say that that's possible. But considering the competitive situation we don't to want to say too much on that?
Mat Delfarno - Hue Street Capital
One last question and then I will hop back in queue. With regards to HSPL, given their sort of unique competitive position because of one major competitor, where are you in the market share and what has changed over the last year in terms of growth in your position with that specific product?
Lily Li
For that product, Shuanghuanglian Injection Powder; now we are capturing more and more market share. Now we are comfortable to say, we have almost over 40% of the market share in that specific product compared to our major competitors.
Mat Delfarno - Hue Street Capital
Okay, alright. That's a god improvement. Alright thank you very much, I will hop back in queue. I appreciate it.
Lily Li
Thank you Mat.
Operator
We'll go next to Julie Chen with Brean Murray
Julie Chen - Brean Murray
Hi lily. I just wanted to clarify, in terms of my pervious question, if I could?
Lily Li
Yes, sure Julie, please.
Julie Chen - Brean Murray
When I was in China last week, I was doing some ground due diligence in terms of the (inaudible), whether they are in the store or not. Part of that due diligence, I see some stores do carry Yi Mu Cau in some regions and some doesn't. So, I would like to go back again in terms of your guidance for the first quarter. Since last week is the first week of March, I didn't see the penetration rate as I would like to see in terms of Yi Mu Cau. So, I would like to understand for the first quarter, the $24 million to $25 million range, does that include the Yi Mu Cau to some degree or it does not include Yi Mu Cau, simply because there is a distribution, potential delayed due to Chinese New Year?
Lily Li
Thank you for the question. Actually we need to clarify that in this call. When we launch this new product, actually it was in the mid January, which is close to the New Year. And then the distribution and the logistic, and also go through the shell time has been postponed. And so, that's why when you were in China in some thought you can see (inaudible) the Yi Mu Cau, but some you cannot find it. So, now it's in the process to put the product in the every star pharmacy. So, considering this situation, so we do include Yi Mu Cau revenue for the first quarter. But the revenue will not be a significant one. Yeah that is the number.
Julie Chen - Brean Murray
Okay. So, how should I be looking at full year guidance? Does the full guidance imply a fully deployed and distributed Yi Mu Cau, or does it imply only a partially deployed Yi Mu Cau?
Lily Li
For the full year guidance that includes Yi Mu Cau revenue totally.
Julie Chen - Brean Murray
Could I just look at the run rate in terms of the GLP right now? What I am trying figure out is that GLP contributes about 24% of your revenue, is that correct? And with the contribution of Yi Mu Cau, shouldn't the present contribution increase to some point?
Lily Li
Yes. I think we can expect that. Yes, Julie.
Julie Chen - Brean Murray
Okay. Thank you.
Lily Li
Thank you.
Operator
We'll go next to [Mustafa Siddique with Springbok Capital].
Mustafa Siddique - Springbok Capital
Yes, good afternoon. I just had a quick follow up on Julie's question actually. I wanted to understand the current and expected pricing on the Yi Mu Cau product. Where are you pricing currently? What kind of room do you have in terms of pricing power there? And are you still playing with sort of testing demand to understand where a comfortable pricing point would be? If you provide some color on that, that will be helpful.
Lily Li
For the pricing of Yi Mu Cau, now we will say, we have relatively higher price on this product compared to some other similar product. But we are confident on that pricing strategy because actually it is a recognized branded product. So, we don't do it as some other common drug in the market.
Mustafa Siddique - Springbok Capital
Okay. I mean, what is the current price point?
Wilfred Chow
We are selling at RMB9.8 products.
Mustafa Siddique - Springbok Capital
Okay. And what kind of penetration are you assuming for this year? I guess, in your guidance, what kind of penetrations you assume for this year? And what's the outlook longer term? Where do you look to target? Where do you expect you can get to comfortably?
Lily Li
You mean for this specific product?
Mustafa Siddique - Springbok Capital
Yes.
Lily Li
We don't give individual product anticipation. I am sorry for that. But, you know we are very confident on this new product. We believe it will have very good revenue.
Mustafa Siddique - Springbok Capital
Okay. Again, I don't know if you can speak to this or if you traditionally do. But so setting aside, I guess, the eventual targets for product penetration here, market penetration here, what kind of penetration will be factored into your guidance for the year? Is that something you can't speak to?
Lily Li
Yeah. I'm sorry, we cannot.
Mustafa Siddique - Springbok Capital
Alright. Thank you.
Operator
We'll go next Shaumo Sadhukhan with Lotus Partners.
Shaumo Sadhukhan - Lotus Partners
Hi, Lily, Tony, and Wilfred. Congratulations on a very nice fourth quarter. Results for the fourth quarter continue to exceed the expectations, it was just positive. Most of my questions revolve around your guidance. If I look at the guidance that you guys have offered for the first quarter, the midpoint is $24.5 million of revenue for the first quarter of ‘07 and I subtract from that number what I estimate GLP revenue would be. So I'm guessing it's maybe 6 million. That would imply that organic growth in the base business would be actually down from about [19] million to a little bit less than that. Am I correct that, that is the case? And why is that organic growth would be down in the base business given that we've talked in the past of organic rate of North of 40%?
So as a follow-on to that. If you do the same analysis for the full year guidance, you take GLP sales out for the full year guidance. And so, just look at the organic growth of the base business based on the numbers that I'm quickly calculating here, it looks like the base business for the year will grow between 15% to 20%. So that's the business ex-GLP. And that again seems to be quite a bit slower than the numbers that you guys who've talked about in the past. So I'm just trying to understand what might be causing this, is my analysis correct and so on?
Lily Li
Okay. You know the first quarter, I mean normally it is the weakest quarter of year due to the seasonality. And first quarter of 2006 was exceptionally strong. We integrated HSPL business for a year. At the end, the foundation is strong enough to create a good revenue. And also as you know, now our business, we are growing off a much larger base than we were previously. So, considering all of that and also plus I would like to add one more point that is the impact from (inaudible) scandal and anti-corruption campaign, especially impact on our prescription product such as Cease Enuresis Soft Gel and HSPL product Shuanghuanglian Injection Powder.
So given all those situation, the organics growth is slowing down. But it is also reasonable. And especially, I want to focus more on the full year revenue growth rather than the first quarter.
Shaumo Sadhukhan - Lotus Partners
So, let's look at the full year revenue growth. So, if I do this analysis excluding GLP, because GLP was not included for all of the six, but excluding GLP we're looking at revenue growth based on my numbers that is some where in the teens on an organic basis. That again is sort of quite a bit less than what the company had sort of talked about before. Is that mainly due to this FDA issue? Is it mainly due to something else that's not been factored in? I am just trying to understand the difference between sort of the 40% plus number that has been thrown out in some of these conferences in the last six months. What the followed guidance implies for the full year?
Lily Li
Yes,
Shaumo Sadhukhan - Lotus Partners
It also could be overly conservative guidance. That could be a possibility as well.
Lily Li
For the full year, we want to give right target or expectation, because now the pharmaceutical industry environment in China is a little bit different especially considering the state FDA situation. So, we would like to have some space to consider the growth.
Shaumo Sadhukhan - Lotus Partners
So, can you explain how the SFDA situation affects AOB's products? Is it simply end user demand or is it something else that's an issue as well?
Lily Li
Yes, it is end user's demand.
Shaumo Sadhukhan - Lotus Partners
Okay. So, clearly we've gone from 40% or 50% organic growth in the third quarter and the fourth quarter to slower for the next year, say 15% or 20% mainly because of this end user demand issue that's created by the SFDA and the fact that you're growing off from a larger base. Is that sort of a fair characterization of the situation?
Lily Li
Yes, I think so.
Shaumo Sadhukhan - Lotus Partners
Okay. One other thing I wanted to ask is, the forward guidance for 2007, does it include the effect of the new products that you might market and sort of expand out your distribution network that are already within your portfolio but you really haven't developed. So, does it include those launches coming forward?
Lily Li
Actually, we didn't consider that part largely.
Shaumo Sadhukhan - Lotus Partners
Okay, so that includes the Yi Mu Cau to some extent, but not any other products that maybe introduced.
Lily Li
Yes.
Shaumo Sadhukhan - Lotus Partners
Okay. Do you also have data on same [POS] sales? So, same store sales or same POF sales and how that's been tracking?
Lily Li
So far we don't have that.
Shaumo Sadhukhan - Lotus Partners
You don't have that. Okay. Thank you, I appreciate it.
Lily Li
Thank you.
Operator
(Operator Instructions) We'll go next to [Sandeep Falook with Mordrock Capital].
Sandeep Falook - Mordrock Capital
This may have already been asked, but I was just curious about the acquisition pipeline and what your thoughts are? What you mainly want to acquire, and just anything that could be considered eminent?
Lily Li
So far I'd like to say nothing eminent.
Sandeep Falook - Mordrock Capital
Okay. Is that because there has been nothing out there or you're just not interested in what is out there?
Lily Li
We just want to be patient and to make sure that it is really a great opportunity.
Sandeep Falook - Mordrock Capital
I see. Okay. It sounds good. Thank you
Operator
Actually, we will take our final question from [Mat Delfarno] with [Hue] Street Capital.
Mat Delfarno - Hue Street Capital
Hi guys, thanks again for taking this last question. Could you just put everything in prospective for us, and speak as to how we are seeing organic growth rates come across lower, when we have jumped from 10,000 distributions points to 100,000, which I understand includes a mix of all kinds of distribution points. Where is the critical disconnect in terms of our understanding of, how we can expand distribution so materially and at the same time sort of see either static or declining growth rates?
Lily Li
I think we can view it in this way. At least, we have two exceptions here. First, the first quarter of 2006, that is an exceptional strong one. That is an exception. And second, for the fourth quarter of 2007, we are actually in an exceptional, different pharmaceutical environment in China. We are experiencing although scandals, reforms, deregulations; all those type of things. So, although its actually the cautiousness of end users and actually that deepens the impact to the whole industry and give impact to almost every individual company. So, we are one of the companies.
Mat Delfarno - Hue Street Capital
Okay. That helps. But with regards to the longer-term, the full year, I understand the exceptional situation of the first quarter in 2007; that make perfect sense. But in terms of, how you can add so many points and how sales or guidance can sort of not track at least with the base that we have seen historically. Is it a change in selling prices, is it a change in product demand? You told me in your first response, you to just picked up market share in HSPL, which is fantastic. So, where is the difference, why doesn't demand seem to add up?
Wilfred Chow
Mat I think I can add some point into hear as well. So we kind of managed [recovery] as a whole, and we are allocating resources our prescription and OTC products. The HQPL acquisition added a lot more distribution point to our company. Majority of our distribution points are pharmacies and retail outlets. We see a kind of slowdown in our prescription product because of the macro environment changes and as our previous product, prior to the acquisition of Jinji series, majority of them are prescription based. As our company expanded to some other areas and adding more products to our company, we are building up a more healthy and more diversified portfolio in the offering. And I think that we are not trying to avoid your question here, but we're looking at the company as a whole and we are still confident that we are going to build our company at a 30% growth rate.
Mat Delfarno - Hue Street Capital
So you are saying that building the company at 30% growth rate is still is realistic. And you are very confident in just sort of a near term?
Wilfred Chow
That's in our guidance.
Mat Delfarno - Hue Street Capital
And that's without acquisitions and without new products out of existing lines?
Lily Li
Exactly.
Mat Delfarno - Hue Street Capital
Wanted to be absolutely clear.
Lily Li
Right.
Wilfred Chow
Correct.
Lily Li
No acquisition included. No new products included.
Wilfred Chow
Our guidance for full year 2007 is going to be $143 million to $147 million, which is approximately 33% of our 2006.
Mat Delfarno - Hue Street Capital
Okay. And that includes GLP, but I see what you are saying. You are sort of looking at it as a full year-over-year. You're including GLP in the mix. That's fair enough. Okay. Thank you. I appreciate the time, and sorry for (inaudible) at you.
Lily Li
Okay. Thank you.
Operator
At this time, I would like to turn the conference back to Ms. Lily Li for any additional or closing remarks.
Lily Li
Thank you everyone for participating in today's conference call. We look forward to updating you our first quarter results in mid-May. Thank you again.
Wilfred Chow
Thank you.
Operator
Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may disconnect your phone lines at this time.
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