Full Position: Skystar Bio-Pharmaceutical (SKBI)

Skystar Bio-Pharmaceutical
Ticker: SKBI (Nasdaq)
Share Price: $10.43
Market Capitalization: $72.63 million
Cash: 20.37% of Market Capitalization
EPS: $1.55
P/E: 6.73

Skystar is a leading producer and distributor of veterinary medicines, vaccines, microorganisms and feed additives in China. Skystar has four product lines and over 170 products, with over 40 additional products in the developmental stage. Skystar has formed strategic sales distribution networks covering 29 provinces throughout China.

Recent Developments:

- Brean Murray Carret & Co. China Growth Conference Presentation

November 19-20, 2009: Skystar is the only US-listed Chinese veterinary medicine supply company. The company has an aggressive growth strategy in place: in the highest margin product line of veterinary vaccines the company has a new production facility under construction which is projected to increase capacity by 2,300% and tenfold revenues and gross margin in 2010 for this segment to $14 million and $8.4 to $9.8 million.

- Company Reports Record Quarterly Revenue of $12.78 Million and Adjusted Net Income of $4.25 Million; and Adjusted EPS of $0.61 per Share

"We are on track with our expansion initiatives to increase our vaccine and micro-organism production capacity by the end of the year. With plans to begin production late in the fourth quarter, we expect that in 2010 we will effectively increase our vaccine revenue to $14 million with 60-70% margins and increase our micro-organism revenue by $2.7 million with gross margins of approximately 70%."

- Company Announces Two-for-One Stock Split

"In line with our anticipated growth, we approved a forward stock split earlier this month, which we believe will increase liquidity and offer an optimal entry point for investors as we continue to grow our business and create additional shareholder value"

Investment Thesis:

I am adding a full position to the China Portfolio. China is the world's largest producer of poultry and livestock and Skystar's products are covering all segments of the animal farming industry. SKBI has a proven high-growth and high-margin business and with two new production facilities coming on-line this quarter 2010 should be a record year for the company by a wide margin.

SKBI is trading on Nasdaq since June 2009 and the company has already completed a public offering for gross proceeds of $21 million in July which leaves Skystar with plenty of cash on its books to finance the aggressive expansion. I am calculating with 2010 net income of at least $14 to $15 million and although a fair earnings multiple for such a high growth business would be more in the 15-20 range, my initial target for this position is $20.00, based on a multiple of just below 9.