3SOF

1. Profile

American Oriental Bioengineering, Inc (AOB). engages in the development, production, and sale of bioengineered products and traditional Chinese medicinal products, primarily in China. The company's product lines include Health Food, Chinese Medical, and Soybean Protein Peptide products. Health Food product series include compound bio-functional beverage, a nutritional beverage; iodine bio-functional beverage, a compound bio-functional beverage with Iodine additives; and vitamate oral liquid, which is designed to strengthen the immue system. Chinese Medical products series include Cease-Enuresis Soft Gel that helps alleviate bed-wetting and urination disorder; root of red-rooted salvia tablet that improves blood circulation to remove blood stasis; and Double Ginseng Yishen Grain, which is used for neurosis. Soybean protein peptide products include soybean protein peptide powder and soybean protein peptide coffee nutritious health drinks; and soybean protein peptide tablets, which maintains or improves protein nutrient condition of the human body. It offers its products through distributors, sales outlets, and hospital and clinics. The company is headquartered in Harbin, China.

2. Technical Analysis

2.1. Long Term Chart



I feel ashamed when I look at AOB's long term chart. Why? Because I bought it at $1.80 (when it was still at OTCBB) and then sold for a quick 38% profit. If I had the stock now I would have a 200% profit. Anyway, a speculator always needs to let the past go and concentrate on what he can do now. Because now is the only time a man can do something for his portfolio, certainly not in the past, and not in the future.

Since then I've been in and out of the stock with poor results. I wish this analysis makes my head clear on AOB.

Ok, on the long term chart we can see AOB had a huge run in 2005, the question now is: will the long term bullish trend continue, or is AOB making a top at this point?

The company increased the number of shares outstanding from 27 million in 2003 to the current 50 million, that is quite a dilution to shareholder value.

2.2. Medium Term Chart



AOB is undecided about her bull/bear outcome. On one hand we have a long term ascending trendline supporting prices (blue line), on the other a possible head & shoulders top.

If the stock could close significantly above S1 and S2 (about $5.90), the H&S top formation hypothesis would be abandoned. But if the stock breaks the ascending trendline and the neckline on the downside (around $4.30), we can assume that the long term trend is no longer bullish.

It's a tough call.

2.3. Short Term Chart



Today we had a nice reaction to the $4.9 support level, and we may attack the $5.90 resistance level shortly. If AOB breaks that resistance on the upside I see it going to new highs above $7.68, solely based on technical analysis.

3. Fundamental Analysis

3.1. Working Capital



AOB has a very strong balance sheet. Assets and cash levels rose every year and liabilities are, at least for now, quite small.

3.2. Revenues



Revenues are steadily growing 50% a year, or so. There's no analyst coverage on the stock, yet.

3.3. Net Income



Net income is not only growing, growth is accelerating !

3.4. Net Margin



AOB's fundamentals are really impressive, even the net profit margin is rising. It is now 28.9%, which is outstanding 

4. General Overview

I don't want to buy AOB on a trading perspective, been burned before doing that. If I buy it, it must be for long term purposes. Fundamentals are just amazing (I think this is the first time I'm really looking at them  ), my only doubt is how much dilution we'll see going forward.

The company certainly does not need more equity financing, but you know how these Chinese companies work ... they're not in the market to make shareholders rich, but, on most occasions, to suck their money.

If revenues continue to grow at 50% a year, in 10 years AOB will have revenues of $1.8 billion . If net margin stay at, say, 25%, it will earn $451 million in profits in 2016. Apply to this an earnings multiple of 20 and the company would be worth $9 B, or, 36 times more than today 

Looking at some of the company's products, like for example the UrinStopper Capsule, thinking of the huge healthcare market China can become (not to mention AOB can expand internationally), yes, I think it is possible.

AOB can be considered a pharma or biotech company with many real products already being sold.

This is a big step for me, but I feel I can buy AOB with a long term perspective.

5. Trading plan

I'll buy $10,000 of AOB around today's open and I'll hold it for the long term.

Looks like we caused an order imbalance.  Hard time opening the stock! 

This is the stock I bought 15k last week at $5.00 and sold it at $5.75.

I followed many of your views bought it back again today.

Check another AMEX IPO stock: BBC.

This company does similiar things as AOB is doing in China (in XiAn city).
The founder of BBC is a young lady and was unemployed 7 years ago.
She started her company with 3,000 yuan.

The stock has gained almost 300% in one and half months (from $6.5 in Nov 17 to $16.20).

Hope that AOB has the same development.

Since AOB is a long term investment, we need to dig into its numbers more carefully.

In David's post, 2005 revenue (es) is 46 mill and net income (es) is 16 mill.

This has raised some questions:

Because AOB first three quarter's total revenue is $34.95 mill. This leaves 4Q revenue only $11.05 mill, which is less than 3Q revenue. No growth compared with 3Q!!

The first three quarter total net income (profit) is $7.24 mill ($0.21 per share).

If 2005 yearly net income estimate is $16 mill, the 4Q net income has to be $8.76 mil,
which is unachievable with only $11.05 mill revenue.

Could you please let us know from where the numbers are obtained?

I bought AOB this morning but sold it later because I got confused with the numbers.

Here is the table

If this year's earning per share is $0.29 ($0.21 first three quarters), with stock price of $5.4,
the PE is 18.6.

I think that it is fairly valued for a China's stock (even high growth 30%+, we have to give some discount - 20% discount).

Actually most Taiwan Tech companies traded as a discount of 20%.

hi,
still holding up today. look at the moving averages..........10 day cross 50, 13 day about to cross fifty, 20 day on it's way to cross fifty,
happy trading
maxi

Quote from: shawFund on January 19, 2006, 10:00:56 AM
This is the stock I bought 15k last week at $5.00 and sold it at $5.75.

I followed many of your views bought it back again today.

Check another AMEX IPO stock: BBC.

This company does similar things as AOB is doing in China (in XiAn city).
The founder of BBC is a young lady and was unemployed 7 years ago.
She started her company with 3,000 yuan.

The stock has gained almost 300% in one and half months (from $6.5 in Nov 17 to $16.20).

Hope that AOB has the same development.

I looked at BBC for about 5 minutes, and I find it attractive. But not nearly as attractive as AOB (the market cap is about the same, but AOB's revenues, profits, assets and cash balances are quite superior).

Quote from: shawFund on January 19, 2006, 05:34:30 PM
Since AOB is a long term investment, we need to dig into its numbers more carefully.

In David's post, 2005 revenue (es) is 46 mill and net income (es) is 16 mill.

This has raised some questions:

Because AOB first three quarter's total revenue is $34.95 mill. This leaves 4Q revenue only $11.05 mill, which is less than 3Q revenue. No growth compared with 3Q!!

The first three quarter total net income (profit) is $7.24 mill ($0.21 per share).

If 2005 yearly net income estimate is $16 mill, the 4Q net income has to be $8.76 mil,
which is unachievable with only $11.05 mill revenue.

Could you please let us know from where the numbers are obtained?

I bought AOB this morning but sold it later because I got confused with the numbers.

Here is the table

Excellent post shawFund, I applaud !

Let me analyze this carefully:

QuoteIn David's post, 2005 revenue (es) is 46 mill and net income (es) is 16 mill.

Since there are no estimates from analysts, what I did was to annualize the first 3 quarters of 2006 to get an end of the year estimate. I get $46.62M in revenues because the 9 month revenues were $34,962,489*1.3333 = $46,615,487.

The same for earnings, but I made a mistake 

9 month net profits were $10,102,729*1,3333 = $13,469,969 (I believe I used Income before Income Taxes on previous estimate, I didn't saw the right number on the column).

QuoteBecause AOB first three quarter's total revenue is $34.95 mill. This leaves 4Q revenue only $11.05 mill, which is less than 3Q revenue. No growth compared with 3Q!!

Since the estimate is based on the 4th quarter being an average of the 3 previous quarters (where there was always growth) this problem is solved.

QuoteThe first three quarter total net income (profit) is $7.24 mill ($0.21 per share).

I have as 9 month net income $10,122,729.

QuoteIf 2005 yearly net income estimate is $16 mill, the 4Q net income has to be $8.76 mil,
which is unachievable with only $11.05 mill revenue.

Yes, that would be impossible. But, revenues can be higher than my $46.62M ($11.67M for the 4th quarter) estimate (if growth in the previous quarters continues, as I think it will) and the new estimate for net income over the 4th quarter is something like $3.37M, which is quite feasible).

QuoteCould you please let us know from where the numbers are obtained?

Yes, the numbers were obtained annualizing the previous 3 quarters numbers. It is a very poor estimate, but AOB isn't covered by any financial analyst  (actually this is quite good news, when they start finding this jewel there will only be «buys»).

QuoteI bought AOB this morning but sold it later because I got confused with the numbers.

I want to apologize and I hope you're not confused anymore, and you're able to buy back the stock lower than you sold 

When the actual numbers come out I'll make my graphs again and make a new analysis on AOB. For now I just love the stock and I'll continue holding it for the long term.

just FYI:
AOB: Short Interest UP 2.4% to 1.7M in Jan 2006
Monday , January 23, 2006 06:00 ET

According to new short interest data from AMEX, short interest for American Oriental Bioengineering Inc (AMEX: AOB) INCREASED 2.4% to 1,702,791 shares for the month ended mid-January, 2006.

SYMBOL          DECEMBER         JANUARY      CHANGE   %CHANGE  DAYS/COVER
--------   -------------   -------------   -------------  ------------  ----------
AOB            1,662,905       1,702,791         +39,886        +2.40%           2

Based on AOB's 20-day average daily share volume of 1,238,800, it would require approximately 2 day(s) of buying to cover this short interest.

Thanks David.

Because no coverage by analysists, we can make our own analysis.

If AOB can keep the same growth of 11% quarter over quarter and the same gross margin 64%,
the 4Q revenue could be $14.9 mill and net profit $4.00 mill ($0.09 share) making $0.30 EPS this year.

If we assume 30% growth rate, that will be a $9.00 stock (discount of 40% real growth rate).

That is under the assumption that there will be no further dilution. It is worth holding long term.

Quote from: David Randolph on January 23, 2006, 07:49:30 AM

Quote from: shawFund on January 19, 2006, 10:00:56 AM

Check another AMEX IPO stock: BBC.

This company does similar things as AOB is doing in China (in XiAn city).
The founder of BBC is a young lady and was unemployed 7 years ago.
She started her company with 3,000 yuan.

The stock has gained almost 300% in one and half months (from $6.5 in Nov 17 to $16.20).

Hope that AOB has the same development.

I looked at BBC for about 5 minutes, and I find it attractive. But not nearly as attractive as AOB (the market cap is about the same, but AOB's revenues, profits, assets and cash balances are quite superior).

I have been following BBC - maybe this should be on another board - and think it is a great opportunity if it will retrace ... I have been hoping for an entry point for a couple of months but the darned thing keeps going up!     Despite the name, it is a fertilizer company, and it is expecting revenue AND earnings growth in the 75-100% range in 2006 ...  I'd love the thoughts on others of an entry point

Back in to AOB today at 5.11, put in a limit order after I saw it had hit 5.08 once today and I guess it dipped back again long enough to get my order filled. 

I actually wouldnt be surprised if the stock pops down to under 5 briefly at some point, but I know it will go back up even if it does, and I didnt want to get left behind in this stock which has made me money every single time I traded it.  I bought it at around 4.9 and sold at 5.27 last round, but had to endure it continually dropping to 4.4, then bouncing to 4.8 a bunch of times before I could get that profit.  That was really strange to me since the stock price should have been pretty constant at $4.8 given the offer price of the additional stock.  Anyway, at this point I think the downside is limited and the upside is quite nice as per all the great analysis so far.  I have traded this stock many times, but will stick with it this time as a long term pick as per David's long term portfolio.

Other few China's plays are:

STP - the world number 1 Solar PowerCell manufacturer - > 50% world market share.

This is a real profitable company. Many US companies doing solar rersearch just burn money, never sells.

This company was founded in Wuxi, China by a Chinese who received Physics Ph.D from Australia 5 years ago.

FMCN - China's number 1 outdoor advertiser which controlls 80% China's market

BBC - already mentioned

NWD - a ShenZhen company. Do your own DD.

I will return to China next month to dig out more China private companies and will let you know if I found some.

As an emerging market, China provides many opportunities in the coming years.

Hi, Shawfund:
where did you get STP id world #1 solar cell manufacturer. if I look at STP website, STP is the fifth largest oen in the world. of course, may be the information they have is out of date. here is the link I have:
http://www.suntech-power.com/gsry.asp
from this figure, sharp is the biggest one, STP is the fifth.

BTW, do you really think solar cell can be widely used in the near future? the cost for sloar cell power is 25-50 cents/watt why current power price at USA is about 8-10 cents/watt.

I would say STP is a way too hype even at cuurent $36 price

just my thoughts

Here is a catch:

California will provide 1 billion dollars to help residents to install solar cells in their roofs. Each family could get a maximum of $1,800 for the installation.

The money will come from each resident's electricity bill (new tax).

That is, the residents pay one time installation fee and part of the expenses will be covered by the government. This way the family will see their electricity bills reduced in the following months.

This AOB thread is getting a bit out of hand, with other stocks being discussed.

Let's go back to AOB: technically the stock is still stuck between $4.90 and $5.90, building a triangular formation.

AOB has quite a turbulent story, been around since 1970 and only recently put its feet togheter. One classic OTCBB stock that finally made it:

«Our company was first founded as Champion Ventures, Inc. on November 30,
1970 under the laws of the State of Nevada. In May of 1999, it merged with
another Nevada company, Internet Golf Association, Inc. ("Internet Golf"), with
the latter becoming the surviving entity. On June 26, 2002, through a share
exchange, Internet Golf became the sole owner of Harbin Three Happiness
Bioengineering Co., Ltd., a company organized under the laws of the People's
Republic of China, to which we refer in this prospectus as Harbin
Bioengineering. Our company then changed its name into American Oriental
Bioengineering, Inc. AOB has subsequently become and is presently engaged in the
development and production of pharmaceutical and health supplement products and
traditional Chinese medicinal products that combine modern bio-technology and
traditional Chinese medical technology. AOB has developed a series of biotech
products marketed in China.

     The shares of common stock of our company are currently listed on the
American Stock Exchange and the Archipelago Stock Exchange under the symbol
"AOB."»

If all warrants are exercised at prices of $4.80 and $6.50, AOB will be with 67,523,288 shares outstanding, so the market cap is $347.74M. Is it worth it?

Well, 2005 net profits seem to be something like $10.7M, so the earnings multiple is about 32. Earnings growth is about 50%. I think it will be worth more than this in the future.

I'll continue holding AOB for the long term.