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Investor PresentationJuly 2008Investor PresentationJuly 2008
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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to, the company’s ability to market existing and new products, ability to access to capital for expansion, and changes from anticipated levels of sales, future national or regional economic and competitive conditions, changes in relationships with customers, dependence on our flagship product profits and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation was developed by the Company, is intended solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy the Company’s stock. This presentation is based upon information available to the public, as well as other information from sources which management believes to be reliable, but is not guaranteed by CHBT as being accurate nor does it purport to be complete. Opinions expressed herein are those of management as of the date of publication and are subject to change without notice.
Safe Harbor StatementSafe Harbor Statement
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Equity SnapshotEquity Snapshot
Listed on the OTC Bulletin Board
Symbol: CHBT
Price (07/11/08):
$11.90
Market Cap:
$203.3 mil
Shares Outstanding: 17.1 mil
Revenue (ttm):
$42.3 mil
Net Income* (ttm): $14.2 mil
Diluted EPS (ttm): $0.80
P/E (ttm): 14.9
P/S (ttm): 4.8
P/B (ttm): 4.6
EV/EBITDA (ttm): 6.9
Insider / Institutional Ownership: 60.2% / 35.9%
Auditor: BDO McCabe Co. Ltd.Fiscal Year End: March 31
*Excluding a $3.4 million gain related to the change in fair value of convertible notes
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Strong revenue and profit growth with high margins
Proprietary technology creates sustainable, decisive competitive advantages
Strong brand with significant franchise value
Rising demand for China’s probiotics driven by increasing wealth and consumption of dairy products
Entry into bulk additives market further propels growth
Attractive valuation
Investment HighlightsInvestment Highlights
5
Corporate OverviewCorporate Overview
One of the largest probiotics suppliers in China Shining is one of the most recognized brands in Shanghai
Proprietary technology offers significant cost and product quality advantages
307 employees (03/31/2008) 60 retail centers in China – 46 in Shanghai (03/31/2008) Operates in retail and bulk additive spaces
Net Income
8.410.9
FY2006 FY2007 FY 2008
21.9
30.6
Revenues
($ in Millions)
42.3
14.2*
Mission Statement: To become the dominant supplier of naturally occurring probiotic bacteria in China
*Excluding a $3.4 million gain related to the change in fair value of convertible notes
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What are Probiotics?What are Probiotics?
“Live microorganisms which, when administered in adequate amounts, confer a health benefit on the host”
– World Health Organization
Benefits of probiotics– Improves health of G.I. tract– Stimulates immune system– Helps break down nutrients properly– Reduces creation of toxins– Reduces symptoms of lactose intolerance– Decreases prevalence of allergy in susceptible individuals– Reduces some risks associated with certain cancers
3 basic methods of delivery– Dairy products – Dietary supplements (capsules, tablets, or powders)– Other food and beverages
* Sample: Bifido Bacteria, one kind of probiotic
Source: ww.usprobiotics.org
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Projected Rapid GrowthProjected Rapid Growth
0
1000
2000
3000
4000
5000
6000
7000
MilkProducts
Animal Feed Capsules Other
CY 2006
CY 2010
Year Milk Products
Animal Feed
Capsule Form
Other Totals (mt)
2006 2,000 1,000 100 300 3,400
2010 6,500 2,500 600 1,000 10,600
Chinese Probiotic Usage and Growth (Metric Tons)
Source: Domestic Probiotics Market Analysis and Forecast Report by Beijing Leadership Management Consulting Co. Limited
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Market SnapshotMarket Snapshot
Chinese affluence drives demand for health food– Demand for health food in China expected to reach $9.7B by 2010
(Source: Pacific Bridge Medical)
Demand for milk/yogurt increasing significantly– Sales of yogurt drinks rose by 25% per year in 2005 and 2006– Chinese Bureau of Statistics forecasts tenfold increase in domestic
dairy consumption, 2007-2015– U.S. banks investing in Chinese dairy industry
Restricted use of antibiotics stimulates probiotic demand– Over-prescription of antibiotics in China– Chinese government is encouraging probiotics supplements to combat
antibiotics abuse
China has limited probiotics production capacity– Current demand relies on imports from European manufacturers
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Current Key ProductsCurrent Key Products
* As of fiscal year ended March 31, 2008
Shining Essence (49% of sales)
Shining Signal (13% of sales)
Shining Golden Shield (13% of sales)
Shining Energy (11% of sales) Facilitates brain cell development and increases alertness
Calms digestive system, enhances G.I. health and protects / strengthens liver function
Reduces high blood pressure, high blood sugar levels and hyperlipidemia
Vitamin C, L. Arginine, and other amino acids
L. acidophilus & B. bifidium
Monascus rice and L. acidophilus
B. adolescentis & lentinusedodes
Enhances the body’s immune system
Product Key Components Uses
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New Product DevelopmentNew Product Development
Additives for Yogurt Essential to yogurt-based drinks
One of the fastest-growing food product segments
in China in 2005 and 2006
Additives for Milk Powder Commonly added to infant formula
Improve digestion in babies
Additives for Other Products Ice creams
Buns and bakery products
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Distribution – Current and PlannedDistribution – Current and Planned
Milk/Yogurt Products via Bulk Additives
New Manufacturing Facility
Retailers /Pharmacies
Company-Owned Retail Centers
Supermarkets
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Strategies for GrowthStrategies for Growth
2 Pronged Strategy Health food business: geographical expansion - 300
Shining retail centers
Launch food additive business
Leveraging on Highly recognized Shining brand
Our cost and quality advantage
Strong R&D capability: introduce new and complementary products
Growing demands for probiotics: establish 150 mt / year production facility to capitalize on the market opportunity
mt = metric tons
Shining Retail Center
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Retail Expansion StrategyRetail Expansion Strategy
300 retail centers by March 31, 2009
550 square feet / center
Initial investment about $40,000 per
center
Financed through operating cash flow
Payback period < 1 year
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Bulk Additive StrategyBulk Additive Strategy
Launch “Shining Probiotics” for bulk additives line
Produce bulk food additives for dairy and animal feed industries
Commenced construction of 150 mt / year production facility in December 2007, to be completed in 2008 CY
Products sold directly to major international and domestic dairy and food manufacturers
Revenue potential of new plant = $110 MM per year
CY = Calendar Year; mt = metric tons
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New Industry-Leading FacilityNew Industry-Leading Facility
The only probiotics plant currently in development in China that will be able to meet the domestic demand for bulk additives Initial revenue opportunity at Phase I capacity = $110MM / year
Phase 1 = 150 mt / year of production capacity
Phase 2 = scalable to 300 mt / year
Production yield allows company to sell for as little as one-sixth competitors’ price while maintaining 70%+ gross margin
Projected to be online in late 2008 CY
CY = Calendar Year; mt = metric tons
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Proprietary Production ProcessProprietary Production Process
Leading edge production technology
Fermentation: Very high production yield
= low production cost and high margins
Superior probiotic strands: Better
functionality and product quality
Micro-encapsulation: Very long shelf life
Bacteria-Based Activation
Bacteria-Based Cultivation
Multistage Fermentation
Bacteria Extraction
Granule Emulsification
Freeze-Drying
Micro-Encapsulation
Double-Aluminum Packaging
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Mr. Jinan Song, Founder, Chairman and CEOFounder and CEO since 1999; Masters degree in politics and economics from Harbin Industrial University
Mr. Raymond Li, CFO20 years of finance experience in financial reporting, due diligence, M&A activity, staff management and tax issues
Ms. Eva Yan, Executive Vice PresidentParticipation in formulating corporate development plans, implementing internal control procedures, and presentations in business negotiations.
Mr. Henry Tai, VP of Corporate Development
20 years of experience in direct investments, corporate finance and auditing in Australia, China, Hong Kong and the United Kingdom
Dr. Shuguang Fang, Chief Technology Officer10 years of experience in bio-engineering; team member of 863 strategic projects and national 9th -5 year and 10th- 5 year projects in China; Ph.D. in Chemical Bio-engineering from East China University of Science and Technology
Dr. Kai Ma, Director of Research and Development10 years of experience in microbiology; team member of the national 863 and 973 strategic projects; Ph.D. in Microbiology from Institute of Microbiology of Chinese Academy of Sciences
ManagementManagement
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Strong Financial PerformanceStrong Financial Performance
Gross Profit ($ in Million)
0.0
10.0
20.0
30.0
40.0
FY '05 FY '06 FY '07 FY'08
68.0%
70.0%
72.0%
Gross Profit Gross Margin
Net Sales ($ in Million)
14.4
21.9
30.6
42.3
FY 2005 FY 2006 FY 2007 FY 2008
CAGR = 43.2%
Net Income ($ in Million)
14.2
5.5
10.9
8.4
FY 2005 FY 2006 FY 2007 FY 2008*
CAGR = 37.5%
*Excluding a $3.4 million gain related to
the change in fair value of convertible notes
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Income Statement, 2006-2008Income Statement, 2006-2008
** The earnings per share figures reflect an increase in weighted-average shares related
to the issuance of convertible notes in December 2007.
***The earnings per share figures reflect an increase in weighted-average shares related
to the share exchange transaction in March 2006.
For Fiscal Years Ended March 31
($ in thousands) FY2008 07-08%
Change
FY2007 06-07%
Change
FY2006 05-06%
Change
Net sales 42,321 38.3% 30,610 40.0% 21,862 51.6%
Gross profit% 70.9% 70.9% 70.5%
Operating income 18,315 22.7% 14,931 22.5% 12,186 52.7%
Net income 14,176* 30.0% 10,905 30.5% 8,354 53.0%
Diluted EPS $ 0.80** $ 0.64 $4.90***
* Excluding a $3.4 million gain related to the change in fair value of convertible notes
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Balance SheetBalance Sheet
March 31 ($ in thousands)
2008 2007 2006
Cash and cash equivalents 64,310 26,992 19,841
Total assets 93,792 44,580 33,427
Total liabilities 49,396 20,670 21,090
Stockholder’s equity 44,395 23,910 12,337
Current assets 79,979 41,897 31,833
Current ratio 3.0 2.0 1.5
Current liabilities 26,896 20,670 21,090
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Attractive ValuationAttractive Valuation
Herbalife Ltd. HLF 2.5B 12.58 0.73 1.10 6.96
Shanghai Jiaoda Onlly Co., Ltd 600530.SS 261.8M 45.22 N/A N/A
China-Biotics, Inc. CHBT $ 203.3M 14.88 0.50 4.80 6.87
AVERAGE (Excluding CHBT) 1.6B 26.64 1.26 1.80 11.36
Nu Skin Enterprises Inc. NUS 982.3M 21.40 1.07 0.83 8.14
Perrigo Co. PRGO 3.3B 26.24 1.07 1.92 15.57
Martek Biosciences MATK 1.2B 27.76 2.16 3.55 14.78
Company Ticker Market Trailing PEG P/S EV / Cap P/E (ttm) (ttm)
EBITDA
Data as of July 11, 2008, Yahoo! Finance. and www.jrj.com.cn
1.60
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Strong revenue and profit growth with high margins
Proprietary technology creates sustainable, decisive competitive advantages
Strong brand with significant franchise value
Rising demand for China’s probiotics driven by increasing wealth and consumption of dairy products
Entry into bulk additives market further propels growth
Attractive valuation
Investment HighlightsInvestment Highlights
23
Contact InformationContact Information
China-Biotics Inc.
Raymond Li, Chief Financial Officer
No. 999 Ningqiao Road,
Jinqiao Export Processing Zone,
Pudong, Shanghai 201206, China
Phone: (86) 21-58349748
Web Site: www.chn-biotics.com
CCG Investor Relations
Crocker Coulson, President
1325 Avenue of the Americas, Suite 2800
New York, NY 10019
Phone: (212) 245-1010
E-mail : [email protected]
Web Site: www.ccgir.com
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Appendix: Reconciliation of Non-GAAP Financial Data
Non-GAAP Net income Q4 2008 Q4 2007
Net Income (Loss) Net Income Net Income
Adjusted Amount 4,622,129 $2,845,734
Adjustments
Non-cash gains from change in fair value of convertible bonds $3,366,000 -
Amount per consolidated statement of operations $7,988,129 $2,845,734
Non-GAAP Net income FY 2008 FY 2007
Net Income (Loss) Net Income Net Income
Adjusted Amount $14,176,244 $10,904,986
Adjustments
Non-cash gains from change in fair value of convertible bonds $3,366,000 -
Amount per consolidated statement of operations $17,542,244 $10,904,986
Thank you. July 2008Thank you. July 2008