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Tuesday, August 18, 2009

Why I think SKBI will do $3 EPS in 2009 and $3+ in 2010

SKBI reported earnings last Friday. 40% Revenue Growth and $0.73 EPS (excluding one time non-cash charge) See Press Release

- SKBI's business is strongest in Q3 and Q4, with Q1 and Q2 being the weakest quarters. In 2008, (after adding back $1.1m of non-recurring financing expenses to the first half of the year), 72% of SKBI's annual revenues and 76% of annual net income were earned in the last six months of 2008. A similar trend occurred in 2007.
See flow of earnings
2008 Quarterly #'s

- SKBI has grown revenue 40% year over year (YOY) in the first six months of 2009.

- SKBI Non-GAAP (excluded non-cash warrant charge and IPO costs) Net Income was $2.4m for the first six months of 2009. The comparable Net Income was $490k for the first six months of 2008. However, this included $1.1m of non-recurring financing charges so the true comparable for the first six months of 2008 is $1.6m. SKBI has grown net income 50% YOY so far in 2009.

- SKBI's Net income for the second half of 2008 was $5.1m (as mentioned 76% of 2008 total non-GAAP net income)

2009 EPS Analysis

- If SKBI grows Net Income for the last six months of the year 50% (like the first six months) they would end up with $10m of net income ($5.1m last 6 mo. of 2008 X 50% + $2.4m first 6 mo of 2009). GAAP weighted average shares outstanding for 2009 will be approximately 2.669m (1.869m were outstanding the first 6 months of 2009 and 3.469m will be outstanding the last 6 months of 2009). 2009 EPS under this scenario would be approximately $3.75.

- If SKBI grows Net Income for the last six months of the year only 25% they would end up with $8.8m of net income ($5.1m last 6 mo. of 2008 X 25% + $2.4m first 6 mo of 2009. GAAP weighted average shares outstanding for 2009 will be approximately 2.669m (1.869m were outstanding the first 6 months of 2009 and 3.469m will be outstanding the last 6 months of 2009). 2009 EPS under this scenario would be approximately $3.30.

- If SKBI Net Income is flat for the last six months of the year they would end up with $7.5m of net income ($5.1m last 6 mo. of 2008 + $2.4m first 6 mo of 2009). GAAP weighted average shares outstanding for 2009 will be approximately 2.669m (1.869m were outstanding the first 6 months of 2009 and 3.469m will be outstanding the last 6 months of 2009). 2009 EPS under this scenario would be approximately $2.81.


2010 EPS Analysis

SKBI will have approximately 3.469m shares outstanding for 2010. Let's consider the three scenarios I presented above.

- If SKBI grows second half 2009 Net Income by 50% (compared to 50% for first half 2009), they would end up with net income of $10m. Applying this 2009 net income to 2010 outstanding shares that would equal $2.89 EPS. To achieve $3 EPS in 2010 ($3 X 3.469m shares outstanding) they would need $10.4m of net income. They would need to grow net income by only $0.4m or 4% YOY.

- If SKBI grows second half 2009 Net Income by 25% (compared to 50% for first half 2009), they would end up with net income of $8.8m. Applying this 2009 net income to 2010 outstanding shares that would equal $2.54 EPS. To achieve $3 EPS in 2010 ($3 X 3.469m shares outstanding) they would need $10.4m of net income. They would need to grow net income by only $1.6m or 18% YOY.

- If SKBI second half 2009 Net Income is flat (compared to 50% growth for first half 2009), they would end up with net income of $7.5m. Applying this 2009 net income to 2010 outstanding shares that would equal $2.16 EPS. To achieve $3 EPS in 2010 ($3 X 3.469m shares outstanding) they would need $10.4m of net income. They would need to grow net income by only $2.9m or 39% YOY.

They will have significant capacity coming online in 2010 that could significantly add to net income:

Business Outlook

"We are in the process of completing our vaccine manufacturing facility and expanding our existing micro-organism facilities, which are expected to be completed later this year," stated Mr. Lu. "Once completed, the vaccine facility is expected to increase our vaccine production capacity by 2,300%, from 250 million units to 6 billion units, with a will have a projected increase in revenue of $14 million and related gross margins of 60-70% in 2010. Our micro-organism facility expansion is anticipated to increase our micro-organism and feed additives production capacity by 48.7% and add $2.7 million in revenue with a gross margin of 70% in 2010."

By my estimates, I believe SKBI will achieve around or above $3 EPS in 2009 and $3+ in 2010 and therefore is significantly undervalued with a P/E of 4-5.

2 comments:

Anonymous said...

On June 30 you thought they could do $4 EPS in 2010. You didn't mention that in this article - have you changed your optimism?

Superman said...

Yes I still think they could easily do $4 eps in 2010 based on new capacity. Being conservative and showing how easily $3 could happen both years

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