Picks on the China Front - CHBT, NEWN and HFGB
China-Biotics Inc (OTC:CHBT). Until recently, probiotics producer China Biotics shares had been in a moderate uptrend, a reflection of strong sales EPS growth and allowing the company to consistently surpass analyst estimates. However, since the CFO announced his resignation on October 23, 2009, shares had retreated by as much as 30%. I often track high level management departure situations in order to take advantage of reduced stock prices caused by investor trepidation and uncertainty. If I can determine that there were no material reasons for the departure and that the position will be filled expediently, I can assume that the stock will recover its losses. On January 22, 2010 CHBT announced the hiring of a new CFO. As luck would have it the news has become lost amidst the markets retreat. With a P/E of less than 10 and its recent above average EPS performance, I am banking that investor appetite for CHBT shares will return.
My thoughts have been reinforced as CHBT just announced that its fiscal 2010 EPS rose 45.45% to $0.32 on a 47.47% increase in revenues to $15.8 million.
New Energy Systems Group (OTC:NEWN). New Energy Systems Group operates in the lithium battery industry. On September 15, 2009, Richard Pearson highlighted the stock when the symbol was CMTP, prompting me to take a closer look at its growth story and add to my share position. The move paid off, but I am expecting more returns from my investment.
I recently interviewed management to determine if shares would follow a similar pattern achieved by shares of Hong Kong Highpower Tech (NASDAQ:HPJ) which attained a January high of $9.82 from its October low of $2.87 and sported a forward P/E of 24. After interviewing management, I am more confident that New Energy may have the vigor to lift shares to new heights.
Prior to mid 2008, NEWN primarily manufactured just battery shells. While not a horrible strategy to target a battery market growing 20% annually, the company felt it needed to modify its business plan to gain a long-term competitive advantage. To that end, it embarked on an acquisition strategy to vertically integrate its business, add new product lines and enter international markets. In fact, New Energy recently announced a $3 million deal in Europe, the company’s first big deal outside of China.
This new focus has resulted in the ability to manufacture, assemble and distribute end products as well as beef up its R&D capabilities. New Energy claims to be the only vertically integrated player of its type in China and is experiencing cost savings that are passed on to the retailer. In fact, the company claims that it is actually being approached by some major and well known retailers in the U.S. The new model has increased its customer base and also opens up an additional revenue source as a private label manufacturer to original equipment manufacturers, or OEM’s.
The company has issued EPS guidance of $1.23 for 2010, which assumes a tax rate of approximately 22%, giving it a forward P/E of 5.3x for a company that grew nearly 80% for the first nine months of 2010. More exciting is the fact that its guidance does not include international business, where margins are 4 times higher than domestically.
I was also glad to hear that the company sees no current need to raise money in the form of equity. The stock has gone relatively unnoticed which could change once its shares graduate from the bulletin board, hopefully in the near future.
Also encouraging are the company’s efforts going forward to increase visibility through investor relations and the fact that they plan to participate in an upcoming Rodman conference in March. These are sure fire ways to let investors know that they care about shareholder value.
Huifeng Bio-Pharma Tech (OTC:HFGB). This stock was one of several that was referenced in a past GeoTeam article. It recently eclipsed its book per share of $0.55 and had a brief stint over $1. HFGB is a diversified pharmaceutical firm. The company recently hired an IR firm, reviving the hope that it may be ready for bigger things. In fact, on February 4th, 2010, the company issued 2009 net income guidance around $3 million and 2010 guidance of $4.5 to $5.0 million. The stock currently trades at about a P/E of 6 on 2009 implied EPS guidance of $0.13.
Picks on the U.S. Front – BOFI and IEC
Bofi Holding Inc (NASDAQ:BOFI). Shares of online banking operator BOFI have bucked the recent market drop and actually hit a high of 13.72 on February 11, 2010. Since the Geoteam highlighted BOFI on November 3, 2009, the company has:
- Considered raising capital to expand growth initiatives
- Attracted Wall Street analyst coverage
- Reported superb top and bottom line growth for is fiscal 2010 second quarter.
I continue to believe that investors will eventually price BOFI shares more along the lines of an exciting growth company rather than a mundane financial player.
Iec Electronics Corp (NYSEMKT:IEC). A recent purchase of mine is quietly garnering investor interest. In simple terms, IEC offers contract manufacturing services and tests circuit boards to ensure that its clients’ processes function properly during pre and post market applications. The company addresses the customers’ unique needs through innovation and specifically targets online technology monitoring services, a business model it believes is unmatched by its competition and can lead to long term loyalty.
Its efforts resulted in revenues and fully taxed EPS that grew from $40.9 million and $0.04 per share in 2007 to $67.8 million and $0.32 per share in 2009. A recent acquisition has opened up a new growth venue, enabling the company to meet the underserved needs of companies that possess older legacy technology whose service contracts have expired.
IEC recently issued impressive financial guidance for fiscal 2010, reflecting its acquisition as well as organic growth. SEC filings also indicate insider buying activity, even as the stock is near its 52 week high. See company presentation.
Disclosure: Long CHBT, NEWN.OB, IEC, BOFI, HFGB.OB, HPJ