American Oriental Bioengineering Considering Several Acquisition Targets

American Oriental Bioengineering (AOB) reported that 2007 revenues jumped 46% to $160.5 million. Net income climbed 48% to $43.3 million, or 61 cents per diluted share. Breaking the numbers down by division, prescription pharmaceuticals were up 30% at $59 million, OTC pharma products doubled their year earlier numbers at $68.6 million, and nutraceuticals moved up a small 6% to $32.7 million.

AOB’s two acquisitions, CCXA and Boke, added a total of $8.6 million to full-year revenues. The two companies became part of AOB during the late third quarter and fourth quarter of the year.

In the conference call, one analyst charged that the increase in revenue could be attributed entirely to the two acquisitions and the contribution of one new product, Yi Mu Cao, a treatment for pre-menstrual symptoms that was launched in 2007. Without being specific, company officials said the higher sales figures were more broad-based than any single product.

Given the performance of the OTC drug segment, AOB will be looking to make acquisitions in that area. The company says that prices for companies are rising, but even at current levels, acquisitions are economically justified. Several companies are being considered at the moment. Long-term value will be the standard used when making acquisitions. AOB is on record as seeking to buy two or three companies per year.

American Oriental held $166 million in cash at the end of 2007. The company floated a secondary offering in 2007 that netted $72 million. During the past year, AOB paid $40 million to buy Guangxi Boke and $30 million for CCXA.

The company called for $38 million in revenue during Q1 of 2008, even though the first quarter is traditionally the slowest quarter of the year. The severe winter weather in February will have a slightly negative impact on sales, a slowdown that is already reflected in the $38 million projection. Earnings per ADS are forecast to be 12 cents, based on a diluted share count of 78 million shares.

In 2008, American Oriental predicts that organic growth will be at least 30%, with any acquisitions adding to the total.

Investors were underwhelmed by AOB’s financial report. The stock gave up 10% of its value, dropping $1.00 to trade at $9.24 in mid-session.

Disclosure: none.

Comments

[ChinaMart]

I was surprised to see AOB drop 10% on it's annual report and conference call yesterday. As an AOB shareholder for just over 3 years now, I still see a bright future for the company with organic growth of 30% and plenty of cash for acquisitions.
I also believe LTUS (Lotus Pharmaceuticals) is worth a look here, as the company has plans for a nasdaq listing, and is currently trading at a PE of 3 based on 2008 make good target of .28/share, with over 60% income growth yoy.