China Biologic Products to Upgrade Plasma Production Facilities

Jan.16.08 | About: China Biologic (CBPO)

China Biologic Products (NASDAQ:CBPO) of Tai’an City, Shandong received a provincial grant of 1.5 million RMB ($200,000) to upgrade its plasma production facilities.

The grant came from the Double Hundred project established by the Shandong Provincial government. As part of the Eleventh Five-Year Development Plan, the province of Shandong identified 100 key products and 100 key technology innovation centers. With financial support, policy and quantitative government assessment, Shandong is seeking to nurture the 100 products, vaulting them into products than rank among the top three in terms of production capacity nationally in their respective industries.

Although China Biologic is listed in the Pink Sheets, it has the revenues and balance sheet of a much larger company. In the first nine months of 2007, the company reported revenues of $25.4 million, a 69% increase from the year earlier period. Profits were up 125% at $7.6 million. Unless its business falls apart in the fourth quarter, China Biologic should be able to report earnings per share of about 47 cents in 2007.

A great deal of the reason for China Biologic’s success is that it has the good fortune to be in the business of providing plasma-derived products to China. Because China clamped down on plasma-gathering stations in the PRC early this year, plasma-derived products have been in short supply and prices have, as a result, skyrocketed.

China Biologic reports that prices for its products have risen between 8% and 425%. A full 69% of China Biologic’s nine-month revenues come from human albumin, a product that saw an increase of 20%. The only factor that kept China Biologic’s results from looking even better was constrained supply: shipments were down, though prices effectively masked that problem. In late 2006 and early 2007, China Biologic bought seven plasma gathering stations in Shandong, but even having its own source of supply was not apparently enough to offset supply problems from other sources.

China Biologic has a short-term bank financing of 10 million RMB ($1.3 million) coming due in February 2008. That should not be a problem, even if the company cannot refinance, because it has $6.1 million in the bank.

China Biologic is very thinly traded. Tuesday, on news that was modestly bullish, however, the stock dropped on very light volume. It was off $1 at $6.50, a decline of 13% with volume of just 4,000 shares. The company has 21.4 million shares outstanding, giving China Biologic a market capitalization of $139 million at the current price.

Disclosure: none.