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  • Rodobo International Inc. worthly dairy value play 3 comments
    Feb 2, 2010 3:20 PM

     

    Rodobo International Inc. worthly dairy value play
     
    Rodobo Int. entered into a reverse merger agreement on September 30, 2008 and is now a leading producer and distributor of powdered milk formula products in the People’s Republic of China. Currently they are one of the largest non-state-owned dairy companies, ranking in the top 10% of the dairy industry. The target customers include infants, children, middle-aged and elderly people in China. The products for infants and children are currently sold under the brand name of “Rodobo” and “Peer”, and the products for the middle-aged and the elderly are currently sold under the brand name of “Healif”. The company has 15 company-owned raw milk collection stations and a new dairy farm with 1,140 cows which started its operation in July 2009 and provide 65 tons of raw milk per day. Rodobo has currently a production facility with two production lines which have raw milk processing capacity of 200 tons per day and can produce 7 tons of dairy products per day. The company’s products have not been implicated in the wide-spread melamine contamination scandal in China in the year of 2008 and they expect to leverage their superior quality control in the market, given that the Chinese government determined that many of their large competitors violated food safety regulations.

    Industrial overview

    China’s population of 1.3 billion offers a huge market for the developing dairy industry. The dairy industry is growing much faster than the growth of China’s gross domestic product (“GDP”).  According to the statistics from the Food and Agriculture Organization of the United Nations (“FAO”), total Chinese milk production was the seventh largest in the world. It is widely predicted that the growth of dairy industry in China will continue at a growth rate of 15% per year.
     
    The Chinese government views the dairy industry as an instrumental component in reforming China’s agricultural system and concurrently increasing the income of farmers. Additionally, the dairy industry plays a key role in improving the diet and overall welfare of the Chinese people. Milk and dairy products have gradually become a staple in the daily food intake of the Chinese. The “11th Five Years Plan” urged that the average annual dairy consumption should reach 10kg per person and should reach 16kg in 2015. Consequently, the dairy market is one of the fast growing markets in China. China’s dairy industry has recently experienced dramatic expansion, with an annual growth rate of approximately 10%-20%. Total revenues of China’s dairy industry grew from $8.33 billion in 2004 to $10.66 billion in 2005, $11.68 billion in 2006, and $18.95 billion in 2007. There are approximately 1,500 dairy producers in China. However, only about 175 producers have received licenses from the government to sell their products directly on the market (source: General Administration of Quality Supervision, Inspection and Quarantine of P.R.C.).
     
    Additionally, only 5% of these 1,500 dairy producers produce over 1 million tons of dairy products annually. Currently, six State-owned enterprises control more than half of China’s dairy market. Because China’s dairy market is highly fragmented, Rodobo believes that current market dynamics provide a significant opportunity to acquire additional market share. The company plans to increase market share through a roll-up strategy whereby they acquire some of their competitors. In addition, the company plans marketing initiatives to increase market penetration with existing customers. They also recently hired some sales force personnel who worked for one of their major competitors.

    According to the “China Food and Nutrition Development outline (2001-2010)” approved by Chinese State Council, the dairy industry is one of the three food industries that should be developed first. The outline required that in 2010, average consumption of dairy per person should reach 16kg, in which the average consumption of dairy per person for rural habitants and those who live in cities and towns are 32kg and 7kg, respectively.  Experts predict that the dairy output in China will be 20 million tons and 70 million tons in 2015 and 2030, respectively. Therefore, over the next few years, the Chinese dairy industry should maintain a fast and sound growth momentum and the consumption of dairy should continue to increase with the rise in living standard and change in consumption behavior. The average consumption of dairy per person in China is much lower than the world average.  This means the Chinese dairy market has tremendous room for growth, especially as the economy continues to boom.
     
    According to the National Bureau of Statistics of the PRC, about 15 million infants are born in China each year. Each 0 - 6 month old baby will need 27.2 kg milk powder, for an annual total demand of 90,000 tons. Each 6 - 12 month old baby will need 31 kg milk powder, for an annual total demand of 110,000 tons. But the current supply is just 80,000 - 100,000 tons, leaving much room for growth. The infant dairy market in China is growing by 17% annually, and has surpassed Japan, becoming the second largest infant formula dairy market in the world, behind the U.S.
     
    Infant/Children Milk Formula
     
    China’s baby food industry, dominated by infant formula, is a multi-billion dollar business and has experienced an annual double-digit growth rate during the past five years up until 2007 (source: “2006-2007 China Infant/Child Milk Powder Market Research Report”). This growth resulted from increased demand which was the cumulative byproduct of three factors: (a) increase in disposable income, (b) penetration of milk formula into the rural market, and (c) female working population growth. The Company anticipates that as income levels rise, Chinese parents will spend more on infant formula due to demand for higher quality and greater variety. China’s per capita dairy consumption is still relatively low, implying ample room for continued industry growth. In 2005, China’s per capita dairy intake was only 21.7 kg or about 20% of the global average (source: The Chinese Academy of Agricultural Sciences, Agricultural Information Institute). Milk consumption in China is not uniform across the population. The majority of consumption occurs in large cities and economically developed regions, whereas the consumption of the rural population is 1/10 of that of the urban population (source: The Chinese Academy of Agricultural Sciences, Agricultural Information Institute). This disparity represents a substantial opportunity for distribution to rural regions.

    There are about 15 million new babies born each year in China according to the National Statistics Bureau of the PRC. Rodobo’s management initially estimated that an average infant in China consumes approximately 30 kilograms of dairy products per year, and that infants generally consume dairy based formula products for approximately 2.5 years. Therefore, Rodobo’s management has estimated the potential market demand for infant formula products per year in China to be approximately 1.45 million tons. Based on Chinese industry statistics, management has calculated that the actual production volume of infant formula dairy products was more than 300,000 tons in 2006. Therefore, management believes there is great potential for demand-side growth for infant formula dairy products in China. Rodobo’s management estimates that the total market size of dairy based nutritional products for infants and children, in terms of sales in China, was about $2 billion USD during 2006, representing a 5% growth rate over the past year. Currently sales growth has been mainly derived from increasing demand driven by medium size urban areas.
     
    Infant formula is a substitute for breastfeeding. Rodobo’s management believes that Chinese women generally only breastfeed babies for the first six months of an infant’s life. After the first 6 months, mothers usually choose infant formula over breastfeeding for two primary reasons: (a) many mothers have to return to work after 6 months, making breastfeeding harder to manage, and (b) infant formula products currently available in the Chinese market provide adequate nutritional value. Accordingly, mothers are comfortable using formula as an adequate breast milk substitute. Empirical evidence also reflects the trend of Chinese mothers’ increased acceptance and use of infant formula as a breast milk substitute. The August 2006 World Health Organization (WHO) presentation stated that the breastfeeding rate in China has been decreasing in recent years, with select cities and regions dipping to around 61% of nursing mothers.
     
    China’s consumer goods market has rapidly developed in recent years, leading to increased demand for more modern food products. Rising income levels have allowed consumers to buy better quality and more sophisticated food products, including those in the baby food sector. Because of the One Child Policy (state policy allowing most Chinese families to have only one child), parents and extended families tend to lavish a great amount of money, time and attention on the only child. The demand for better quality products is derived from parents being able to spend more on baby formula and nutritional products. This market demand has led to the development of new products containing additional nutrients, including various essential fatty acids, vitamins and minerals.
     
    Middle-aged & Elderly Milk Formula
       
     China’s middle-aged & elderly milk formula industry is gradually emerging. China’s large aging population has provided the basis for the formation and development of the elderly market. At present, China’s elderly population has reached 130 million, accounting for nearly 11% of the total population. It is estimated that from 2025 to 2040, the elderly population will grow from 274 million to more than 400 million. In the next 50 years, China will experience a rapid growth trend for its aging population.
     
    The improvement of the disposable income for the elderly as well as the improving awareness of health and wellness creates enormous opportunities for the development of the elderly market. About 45% of the people aged 60-65 years old in urban areas are still working, as a result, in addition to pension income, they also have additional stable income. According to a survey done by the China Aging Research Center, there are 42.8% of the elderly in urban areas have savings. While pension will be increased to 838.3 billion RMB by 2010 and 2.8 trillion RMB by 2003.
     
    Due to the physical reasons, the demand for health care products for the elderly, according to the World Health Organization (“WHO”), has an incidence rate of 50% for people aged over 50% and 80% for people over 55%. Forgetfulness, insomnia, high blood pressure, high cholesterol, osteoporosis and other diseases are more common. With the improvement on living standards and awareness of health and wellness, the consumer demand on health improvement products will continue to increase.

    Financials

    Net sales:

    Net sales for the fiscal year ended September 30, 2009 were $34.7 million, an increase of approximately $12.5 million or 56.7%, compared to net sales for the fiscal year ended September 30, 2008. This increase was primarily driven by volume growth, with the average selling price remaining flat over both periods. Rodobo continued their efforts to develop distribution networks and expand the market areas in the 9 provinces and Beijing in which they currently sell products. The increase was also attributed to the launch of a new product series called “Healthy Elderly” under their adult formula product line in October 2008. Since then all the products under adult formula product line are sold under the brand name of “Healthy Elderly”. Due to the popularity of Healthy Elderly among customers, sales generated from adult formula product line increased by approximately $2.5 million from $3.9 million in the fiscal year ended September 30, 2008 to $6.4 million in the fiscal year ended September 30, 2009. Rodobo also launched another new product series called “Peer” under our baby/infant formula product line in July 2009. Sales generated from Peer product series were approximately $0.7 million for the fiscal year ended September 30, 2009.
     
    Cost of Goods Sold:
     
    Cost of goods sold increased approximately $5.4 million, or 46.0% from $11.7 million for the year ended September 30, 2008 to $17.1 million for the year ended September 30, 2009. This increase was primarily attributable to the sales increase over periods and the increase in cost of raw materials.
     
    Gross Profit:
       
    Gross profit increased approximately $7.2 million for the fiscal year ended September 30, 2009, and went up 68.6% compared to the gross profit for the fiscal year ended September 30, 2008. The overall gross profit margin had improved from 47.2% in the fiscal year ended September 30, 2008 to 50.7% in the fiscal year ended September 30, 2009.
     
    The improvement of our gross profit margin was mainly driven by the shift from low-margin products such as Whole Milk Powder Formula to high-margin products such as Baby/Infant Formula, and Healthy Elderly over these periods. The Whole Milk Powder Formula product line historically had a relatively lower gross margin (11-16%) than other product lines. Sales from Whole Milk Powder Formula were 22.8% of total sales in the fiscal year ended September 30, 2009 compared to 32.4% in the fiscal year ended September 30, 2008. The Baby/Infant Formula product line historically had a relatively higher gross margin (62-66%). Sales from Baby/Infant Formula were 58.8% of total sales in the fiscal year ended September 30, 2009 compared to 44.2% in the fiscal year ended September 30, 2008. The newly launched product line “Healthy Elderly” achieved sales of $6.4 million in the fiscal year ended September 30, 2009, 18.4% of total sales. Gross margin for Healthy Elderly was 52.8% for the fiscal year ended September 30, 2009.
     
    Operating expenses:
     
    Operating expenses for the fiscal year ended September 30, 2009 were $11.2 million, an increase of approximately $6.0 million or 115.4% compared to the fiscal year ended September 30, 2008. Operating expenses as a percentage of net sales increased from 23.6% in 2008 to 32.4% in 2009.
     
    Distribution expenses increased by approximately $5.6 million, and went up 131.8% for the fiscal year ended September 30, 2009, compared with the figure for the fiscal year ended September 30, 2008. The increase was mainly due to an increase of $5.2 million in distribution expense reimbursements as a result of sales increases and market expansion. The increase was also attributed to an increase of $0.2 million in freight costs and an increase of $0.1 million in salaries.
     
    General and administrative expenses increased by $0.5 million, or approximately 45.9%, from $1.0 million for the fiscal year ended September 30, 2008 to $1.5 million for the fiscal year ended September 30, 2009. The increase was primarily due to $0.3 million of incremental expenses incurred by our subsidiaries, Cayman Mega, Harbin Mega and our VIE, Qinggang Mega. The increase was also attributed to $0.3 million of stock-based compensation expenses in the fiscal year ended September 30, 2009. On August 8, 2009, the Company granted 1,020,000 restricted shares of its common stock to employees and a consultant of the Company in consideration for services to be rendered starting from July 1, 2009. The company did not incur stock-based compensation expenses in the fiscal year ended September 30, 2008.
     
    Overall, due to the increase in net sales and the improvement in gross profit margin, offsetting by the increase in operating expenses, they realized a 21.8% increase (approximately $1.1 million) in income from operations in the fiscal year ended September 30, 2009 compared to the fiscal year ended September 30, 2008.
     
    Income Tax:
       
    Harbin Rodobo is entitled to a tax holiday of five years for full Enterprise Income Tax exemption in China. The preferential tax treatment commenced in 2005 and will expire on December 31, 2009. Qinggang Mega is qualified for tax exemptions due to a government tax preferential policy for agriculture industry. The estimated tax savings amounted to $1,698,898 and $1,379,856 for the years ended September 30, 2009 and 2008, respectively. The net effect on basic earnings per share had the income tax been applied would decrease earnings per share from $1.01 to $0.76 for the year ended September 30, 2009 and $3.71 to $2.75 for the year ended September 30, 2008.
     
    Net Income:
     
    The company achieved $6.8 million of net income for the fiscal year ended September 30, 2009, an increase of $1.5 million (approximately 27.5%) compared with $5.3 million for the fiscal year ended September 30, 2008. This increase in net income was mainly attributable to the increase in net sales, partially offset by an increase in cost of goods sold and operating expenses. This increase in net income was also attributable to an increase of $0.34 million (approximately 345.1%) of subsidy income from the government, from $0.1 million for the fiscal year ended September 30, 2008 to $0.44 million for the fiscal year ended September 30, 2009.

    Source: RODOBO INTERNATIONAL INC - 10-K (Filed: 13-01-2010)


    Current stockprice $ 2,10
    EPS fully diluted $ 0,42
    Book Value P/S $ 1,32
    P/E Ratio 5

    Catalysts:
    - new acquisitions or consolidation opportunities
    - uplisting to AMEX or NASDAQ
    - new milk formulas
    - institutional ownership

    A 30% EPS-growth the coming years is a clear possibility, that would leave us this year with an EPS of around $ 0,55. If we retain a P/E of around 10 that would mean that there is still a lot of upside potential. Four or five dollars must be achievable. The only problem is the lack of liquidity. 


    For more information visit     www.rodobo.com
     


    Disclosure: LONG RODOBO
    Themes: Food, Dairy
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  •  
    Rodobo International, Inc. Completes Acquisitions of three Chinese Dairy Companies Which will Expand the Company's Production Capacity From 200 Tons to 1,200 Tons Per Day
    RELATED QUOTES
    Symbol Last % Change
    RDBO 2.49 10.67%


    HARBIN, China, Feb 08, 2010 /PRNewswire via COMTEX News Network/ -- Rodobo International, Inc. (OTC Bulletin Board: RDBO) announced its completion of the acquisition of three dairy companies in the People's Republic of China (the "Acquisitions"), through the mergers of Ewenkeqi Beixue Dairy Co, Ltd ("Ewenkeqi Beixue"), Hulunbeier Beixue Dairy Co., Ltd ("Hulunbeier Beixue"), and Hulunbeier Hailaer Beixue Dairy Factory ("Hulunbeier Hailaer Beixue"), hereinafter collectively referred to as "Beixue Group", into the Company's wholly owned subsidiary Tengshun Technology and Development Co., Ltd. ("Tengshun Tech"). After the Acquisitions, Rodobo's daily processing capacity of raw milk is expected to increase by five folds, from the current 200 tons per day, to about 1,200 tons per day.


    Pursuant to the Equity Transfer Agreements entered into on February 5, 2010, the Company paid RMB2,100,000 in cash and issued 10,600,000 shares of the Company's common stock (the "Common Stock") and 2,000,000 shares of Series A Preferred Stock in exchange for 100% of the equity interest in Beixue Group composed of Ewenkeqi Beixue, Hulunbeier Beixue and Hulunbeier Hailaer Beixue. Based on independent valuation reports issued by Beijing Haohai Tongfang Assets Appraisal Co., Ltd, dated as of February 4, 2010, Beixue Group has a total net asset value of over USD 30 million.


    "We are extremely happy to complete the acquisition of Beixue Group," said Mr. Yanbin Wang, Chairman and CEO of Rodobo, "It is an exciting milestone for the long-term growth strategy of Rodobo. We believe this synergic acquisition will enable us to further consolidate our safe, secure and sustainable milk supply to keep pace with the growing demand of our milk powder products for the Chinese consumer. We expect that this acquisition will increase our distribution channels as well as production capacity." Mr. Wang concluded, "We view the acquisition of Beixue Group as a major opportunity to expand our brand and make further inroads into the milk product market in China."


    Complete information regarding the acquisitions will be disclosed in the Current Report on Form 8-K to be filed by Rodobo with the Securities and Exchange Commission.
    8 Feb 2010, 10:14 AM Reply Like
  •  
    Rodobo International, Inc. Reports the First Quarter of Fiscal Year 2010 Results
    Rodobo International, Inc. Reports the First Quarter of Fiscal Year 2010 Results
    Revenue of $10.1M, an increase of 14% compared to the first quarter of fiscal 2009Net income of $2.3M, an increase of 21% compared to the first quarter of fiscal 2009
    Feb. 12, 2010 (PR Newswire) -- Rodobo International, Inc. Reports the First Quarter of Fiscal Year 2010 Results

    HARBIN, China -- Rodobo International, Inc. (OTC Bulletin Board: RDBO), a leading manufacturer and distributor of high quality milk formula products for infants, children, the middle-aged and the elderly in China, today announced its financial results for the first quarter of its fiscal year 2010.

    Results for the Three Months Ended December 31, 2009

    Revenue for the first quarter ended December 31, 2009 was $10.1 million, an increase of 14% compared to the same period ended December 31, 2008. This increase was primarily driven by volume growth, with the average selling price remaining flat over both periods. We continued our efforts to develop distribution networks and expand the market areas in the 9 provinces and Beijing where we currently sell products. The new baby/infant formula product series marketed under the brand name of "Peer" which was launched in July 2009 attributed approximately $3.8 million to the first quarter.

    Gross profit for the first quarter ended December 31, 2009 was $5.3 million, an increase of 18% compared to the same period ended December 31, 2008. The overall gross margin increased from 51% in the first quarter ended December 31, 2008 to 53% in the first quarter ended December 31, 2009. The improvement of our gross margin was mainly driven by the increase in sales of high-margin new baby/infant formula which is marketed under the brand name of "Peer", which had a gross margin of 70% and accounted for approximately 38% of total sales in the first quarter ended December 31, 2009.

    Due to the increase in revenue and improvement in gross profit margin, offsetting by the increase in operating expenses, operating income increased 2% to $2.0 million in the first quarter ended December 31, 2009, compared to the same period ended December 31, 2008.

    Net income grew 21% to $2.3 million in the first quarter ended December 31, 2009 compared with $1.9 million in the first quarter ended December 31, 2008. This increase in net income was mainly attributable to the growth in revenue, partially offset by an increase in cost of goods sold and operating expenses. This increase in net income was also attributable to a $0.3 million non-recurring subsidiary income from government support funds.

    Company and Market Outlook

    "During the first quarter of our fiscal year 2010, Rodobo International had experienced a healthy growth in revenues and earnings," stated Mr. Yanbin Wang, Chairman and CEO of Rodobo, "We continue to focus on providing high quality premium products to our customers. Our new organic dairy farm with 1,140 cows and 15 company-owned raw milk collection stations currently provides 65 tons of high quality fresh milk per day. We believe that our recent acquisition of three Chinese dairy companies will expand our production capacity from 200 tons to 1,200 tons per day and increase our distribution channels. We expect exciting further growth in the coming quarters of this year."
    12 Feb 2010, 10:27 AM Reply Like
  •  
    I still think Rodobo(RDBO) will be a high flyer, they are attending the Rodman & Renshaw Conference, so I guess they have to come with a clear picture of the acquisitions they did one month ago. Maybe their presentation will give us an inside view of future expectations in terms of revenue, etc.

    The only problem is the lack of liquidity which I mentioned already in other posts.
    7 Mar 2010, 02:35 PM Reply Like
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