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China Kangtai Cactus Bio-tech, Inc. (OTC:CKGT) is a grower and producer of cactus-related products with over 387 acres of plants and an R&D group that holds 15 product patents and is seeking another 16 in a variety of product categories. The company currently produces and sells four cactus-based product categories: nutraceuticals, which are health and wellness dietary supplements; beverages, including juice, teas, beer, wine, and spirits; packaged foods, such as noodles, biscuits and pickles; and raw and intermediate cactus materials. There are about 36 existing products under these four categories. These products are sold throughout China in supermarkets, food stores, hotels and restaurants through a distribution network that has currently covered 14 provinces and 4 municipalities.

  • Current Price: $1.40
  • 52-Week Range: $0.50-$2.03

Evaluation

This is another of the so-called nutraceuticals companies in China, producing various forms of health foods and supplements for consumer usage. What is unique here is that these products are derived from the cactus plant, which, according to company literature, contains various forms of vitamins and minerals. However, unlike some of the more established players out there, CKGT appears to be a regional player, albeit with potential for growth. Ultimately there is very little to distinguish this company from the many players out there, and the health benefits of cactus must be taken on faith. One interesting note: the company has plans to launch (in 2008) a cactus herbal cigarette, as a healthy alternative to tobacco-based ones.

Valuation

CKGT appears to have a very low valuation. This could be due to its low awareness (average trading volume of just slightly over 20K), low market capitalization (currently $24.8million), and of course the OTC discount. In many ways, this company feels like AOB before AOB got discovered by the investment community. I think CKGT certainly merits a closer look.

  • EPS* (FY06) $0.08 [LTM] $0.14 (FY07) $0.21 (FY08) $0.33
  • P/E [LTM] 10.0 (FY07) 6.7 (FY08) 4.2
  • PEG 0.17

(*Based on RedChip research report dated 9/13/07)

Investment Risk: Moderate to High.

Bottom Line: Speculative Buy.

My Position: Looking to accumulate on weakness.

Source: Eye on China Kangtai Cactus Bio-tech