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Better Know A Stock - Part 20

Recs

28

February 27, 2011 – Comments (16) | RELATED TICKERS: JGBO.DL , CSKI , CCME.DL

The inspiration here is all Stephen Colbert's.... he has his series of "Better know a district" so I figured why the heck not... Better Know a Stock, companies that are never followed or too small to be heard of. So here goes that 9000 part series.... =)

Jiangbo Pharmaceuticals (Nasdaq: JGBO)

Jiangbo Pharmaceuticals engages in the research, development, production, marketing and sale of pharmaceutical products in China.

I know what you're thinking....another Chinese company. Just breathe..... breathe....breathe. Ok let's look at what facts we do have.

Jiangbo reported results on Wednesday which continue to alleviate fears that it's a reverse merger fraud like Rino International. Jiangbo reported a double-digit jump in revenues and another marked jump in cash as its primary products, Clarithromycin sustained-release tablets and Itopride hydrochloride granules accounted for two-thirds of its revenue. What's important to note is its cash flow remains strong and it has resolved a long-standing debt issue with its lenders which had haunted the company for years.

On a trailing basis, the company has produced $1.74 in EPS in just the past six months. Although Jiangbo stated that the majority of its products have hit their maturity level and may not grow much beyond their current levels, you have to consider the amount of cash flow these high margin products will continue to bring in. In addition, Jiangbo thought it best to remove its prior EPS guidance because of potentially rising material costs. Even if costs clamp down on the company, I'd have to assume that even during its weaker months, it'll wind up with a full-year figure around $2.75 in EPS. Pretty much we're looking at a P/E of about 2.4 based on those figures.

The best part is I haven't even mentioned the ridiculous amount of cash that Jiangbo has on its books thanks in large part to those high gross margins. Jiangbo ended the quarter with $135.9 million in cash equivalents which is a $27 million jump from this period last year. In short order, once you remove their existing debt balance, Jiangbo has nearly $9 in net cash. Forgetting their profitability and the $1.74 it's earned in the past six months, the company has $9 in cash that you can buy for $6.30 a share right now. Pretty much, that's a 30% discount to putting your money under the mattress.

Jiangbo insiders have never sold any shares of the company, another sign that investors should think twice before assuming this company is a fraud. Three of the five company officers have served with the company practically since its inception which is promising but we still need to remember this is a young and potentially inexperienced management team.

In the end this is a cash story. We have to determine whether it is worth the risk to buy into a company trading that much below cash value given the rash of Chinese frauds we've witnessed over the last year. In my opinion, we've seen Jiangbo reporting its earnings results in a timely manner, it's resolved its debt repayment issues, and it hasn't diluted shareholders into oblivion. It continues to reign in cash flow and insiders have been unwilling to sell any of their 48% stake in the company. Everything here, to me, points to an extremely undervalued company that has been marred by fraud allegations in China Media Express, China Sky Medical, Rino International, Duoyuan Printing and a few others I'm sure I'm forgetting.

Based on Jiangbo's nearly $9 in cash and consistent history of producing $2 or more in yearly EPS, I think a more than fair value lowball estimate would be $13.00 a share. Eventually investors are going to wake up and smell the profit behind these herbal medicines.

Those numbers don't lie, and that ain't no bull!

TMFUltraLong

16 Comments – Post Your Own

#1) On February 27, 2011 at 6:47 PM, Bays (30.06) wrote:

I stay away from pharms, but nonetheless, it's refreshing to see a bottom-up blog with some actual research. 

Where have you been!

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#2) On February 27, 2011 at 6:50 PM, TMFUltraLong (99.95) wrote:

I've been busy writing for the Motley Fool. Today and the past few days I've been stuck at home with the flu....

TMFUltraLong

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#3) On February 27, 2011 at 6:56 PM, Bays (30.06) wrote:

Make sure to post your articles on here from time to time like Sinch.

Bummer, get well soon my friend.

 

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#4) On February 27, 2011 at 7:01 PM, TMFUltraLong (99.95) wrote:

My 50 most recent articles can be found here: http://www.fool.com/author/1813/index.aspx

TMFUltraLong

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#5) On February 27, 2011 at 7:13 PM, Bays (30.06) wrote:

Wow, you have been busy.  Thanks

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#6) On February 27, 2011 at 9:49 PM, XMFSinchiruna (27.17) wrote:

Feel better!

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#7) On February 28, 2011 at 1:06 AM, ikkyu2 (99.12) wrote:

Herbals?  You mentioned clarithomycin and itopride.  These aren't herbals - they are pharmaceuticals, the kind of drugs that would require FDA clearance to be sold in the US (clarithromycin is the generic name of what in the US was Abbott's Biaxin.)  Does Jiangbo have a herbals business too?

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#8) On February 28, 2011 at 1:21 AM, TMFUltraLong (99.95) wrote:

ikkyu2,

Yes, Jiangbo does herbal based medicines as well.

TMFUltraLong

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#9) On February 28, 2011 at 2:13 AM, ozzfan1317 (78.70) wrote:

Nice writeup I dont do Pharma its outside my circle of competence but nice work +1 rec

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#10) On February 28, 2011 at 6:09 AM, openhandedgrouse (< 20) wrote:

UL, thank you for the info on JGBO. It seems like a good value.  I will take a nibble on it for my profolio. I really respect your opinion on stocks.  Could you do me a huge favor and check out BYDDF.PK (BYD) and tell me what you think. I believe BYD is a great company, at a great price and with a catalyst coming.  Wang Chuan-Fu started BYD as a battery manufacturer in 1995.  Since then, it has transcended into a green technology company, disguised as an electric car company.  Their goal is to be the number 1 car company in china by 2015 and number 1 in the world by 2025.   The upcoming catalyst:  Warren Buffet owns 10 percent of BYD and from what I’ve read BYD will have their new F3DM vehicle at Berkshire Hathaway's annual meeting on Saturday, April 30, 2011.  BYD is currently testing the F3DM in L.A. and planning to begin selling them in the U.S. as early as the end of 2011.  

I would do a write up on BYDDF.PK, but I came across an excellent article written by Alex Bossert.  http://www.gurufocus.com/news.php?id=100041

Thanks in advance.

 

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#11) On February 28, 2011 at 5:06 PM, awallejr (75.86) wrote:

Ultralong you did a piece on this company before and I think it peaked at over $10 within the last 6 months and has steadily crashed since. 

http://caps.fool.com/Blogs/ViewPost.aspx?source=isesitlnk0000001&bpid=422642&mrr=0.50

That's a pretty steep price drop during a tremendous overall market rally. I have to believe it isn't a "broken" stock.  I think people need to tread carefully.  If their numbers are "real" this would be a screaming buy, but its price action is saying beware.

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#12) On March 02, 2011 at 11:57 PM, Option1307 (30.26) wrote:

I can't say I'm comfortable touching anything China related these days, but this is another solid write up. +1!

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#13) On March 03, 2011 at 10:19 AM, JimBobbly (20.24) wrote:

Yo, good to see you back on the blog UL.

BTW, MCZ has been quite a ride, brought at 0.49 after reading your first article on them last year and since made a killing! your the small-cap king :D ty v.much 

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#14) On March 06, 2011 at 6:15 AM, allanrudolf (< 20) wrote:

their accountant,Frazer Frost,has been associated with many shady chinese reverse merger stocks including the fraudulent RINO.just google" frazer frost china".

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#15) On March 06, 2011 at 6:21 AM, allanrudolf (< 20) wrote:

you need to wonder why a company would continue to use an accountant with a sullied reputation unless ...

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#16) On March 17, 2011 at 2:04 AM, osucowboys344 (28.43) wrote:

Let us not forget that the auditors did not comitt the fraud. Rino's managment comitted fraud and by forging invoices. Auditors are not responsible for preventing all frauds. The auditors set up controls to deter fraud but they cannot reasonably detect all frauds. I am sure frazer took due care in their audit. Chinese invoices probably look different than american invoices and that is probably why it is hard to ascertain what is a real or fraudulent invoice. Either way, I would not compare JGBO to Rino for many reasons. If JGBO was a fraud then they would have ignored resolving their debt issues. JGBO's managment is trying to resolve their issue with transferring money outside of the country. To many, this may seem like something is wrong but from talking with people who do business in china......this is a common issue. I think this is a good buy.

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