American Oriental Evenly Poised - Analyst Blog
June 14 2011 - 1:11PM
Zacks
We are maintaining our Neutral recommendation on
American Oriental Bioengineering Inc. (AOB) with a
target price of $1.25.
American Oriental Bioengineering, based in Beijing, China,
together with its wholly owned subsidiaries, is a pharmaceutical
company that develops, manufactures and commercializes both
plant-based pharmaceutical and plant-based
nutraceutical products.
In May 2011, American Oriental reported first quarter 2011
earnings per share of $0.01, lower than both the Zacks Consensus
Estimate and the year-ago earnings by $0.03. Earnings in the first
quarter of 2011 were hurt by lower revenues.
We are encouraged by the rapid growth of the Chinese
pharmaceutical industry. The Chinese government’s efforts to
improve the healthcare infrastructure coupled with its goal to
achieve near-universal health coverage are responsible for the
growth.
The pharmaceutical industry in China was worth approximately
$181 billion in 2010. China is expected to become the world’s third
largest pharmaceutical market (including Chinese traditional
medicine and western therapies) by 2011. The rapidly growing
Chinese pharma market provides a lucrative opportunity to American
Oriental to increase its revenue.
Moreover, the growth-by-acquisition strategy of American
Oriental is encouraging, and has helped expand its product
portfolio and drive growth. For example, the acquisition of Nuo Hua
Investment Company Ltd. in 2008 caused the distribution of
pharmaceutical products to become part of the company’s operations.
We believe that such profitable acquisitions in future will aid the
company’s growth.
However, the dependence of American Oriental on a few products
to generate the bulk of its revenues is a risk. Furthermore, the
excessive competition confronting the company’s products is also a
concern. Consequently, we see limited upside potential from current
levels and retain our Neutral view on American Oriental.
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