Bohai Reports Significant Top Line And Bottom Line Increase For Fiscal 2011
Grant Zeng, CFA
On September 29, 2011, Bohai Pharmaceutical Group Inc. (BOPH) reported financial results for the twelve months ended June 30, 2011.
Revenue for the fiscal year ended June 30, 2011 increased 37.2% to $81.3 million as compared to $59.3 million for the fiscal year ended June 30, 2010. This increase was primarily due to a 28.3% increase in the Company's four lead products (Lung Nourishing Syrup, Tongbi Capsules, Tongbi Tablets and Shantongning Tablets), which accounted for over 76% of total revenues.
Gross profit for the fiscal year ended June 30, 2011 was $64.0 million, compared to $49.1 million for the same period last year. Gross profit margin as a percentage of revenue declined to 78.7% from 82.8% for the same period last year. The decrease in gross profit margin was principally due to lower gross profit margins from five products introduced in May of 2010 due to higher manufacturing costs and lower unit sales prices. Excluding gross profit from the five new products, total gross profit margin would have been 81.9%, in line with gross profit margin of 82.8% for the twelve months ended June 30, 2010.
Selling, general and administrative expenses increased 26.3% to 445.8 million due to increased marketing and promotion expenses related to the Company's lead products.
Operating income for the twelve months ended June 30, 2011 increased 42.1% to $18.3 million compared to $12.8 million for the twelve months ended June 30, 2010.
GAAP Net income for the twelve months ended June 30, 2011 was $14.0 million or $0.75 per diluted share, compared to $9.1 million or $0.55 per diluted share, for the twelve months ended June 30, 2010. The increase in net income for the twelve months ended June 30, 2011 over the same period last year was primarily attributable to an increase in total gross profit of $14.9 million offset by an increase in selling, general and administrative expenses of $9.5 million and an increase in the tax provision of $1.4 million this fiscal year compared to the same period in 2010.
On an adjusted basis, Non-GAAP net income increased 37.4% to $11.8 million or $0.66 per diluted share versus $8.6 million or $0.52 per diluted share in fiscal 2010.
Total other income included a non-cash gain for change in fair value of investor and placement agent warrants of $4.5 million for the twelve months ended June 30, 2011 compared to $0.9 million for the same period in 2010. Total other income for the twelve months ended June 30, 2011 was also comprised of non-cash interest expenses for the unamortized discount of the convertible notes converted in connection with the Company's private placement on January 5, 2010 and non-cash charges for deferred tax expense of $0.4 million.
At June 30, 2011, Bohai had cash and cash equivalents of $13.3 million and restricted cash of $11,043.
Our key takeaways from the financial report include:
• Bohai continued its growth momentum in the current fiscal year;
• Both total revenue and net income exceeded our estimates ($81.3 million vs $80.8 million for revenue and $0.66 vs $0.52 for EPS);
• Through the acquisition of Yantai TianZheng, revenue base is further diversified and company size increased dramatically;
• Both top line and bottom line will continue to grow dramatically in the next 5 years due the acquisition of Yantai Tianzheng;
• Balance sheet is very strong with $13.3 million in cash and no long term debt as of June 30, 2011.
Key Product Sales
We have an Outperform rating on Bohai with a price target of $8 per share.
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