Is this the Next EFUT? - From the Person who called the First One

Before you read this: This message and this blog are not investment advice. This blog documents why I buy or sell stocks personally and is in no way meant to advise anyone to trade. Chasing stocks is never something I do or recommend. Low float stocks in particular can be extremely volatile and risky. Please read disclaimers at the bottom of the blog.

One of my most successful stock trades/ideas ever was EFUT. It was a Chinese IPO in 2006. The IPO came out around October 31, 2006 at $7 and instantly ran up to the $10-$11 range the next day. It then was dead and drifting for 3 days and most lost faith and thought it was over while I was pounding the table at www.thelion.com (where I post as Superman) that this stock was going to make a monster move like TZOO did. Read my post Twelve trading days later EFUT hit a high of $48.64 and would top out at $49.90 a few days after that for a 454% gain in a little over 2 weeks. See historical prices EFUT was one of the more exciting small cap plays of all time (excluding the Internet boom era).

I bought what I believe I have now found another stock that has similar characteristics that EFUT had except its EPS is WAY higher than EFUT's ever was.

SKBO.OB

Skystar Bio-Pharmaceutical Company See Website has filed an S-1 to sell 1m shares in what looks like a move from the OTCBB to the Nasdaq. This is a Chinese Agriculture/Food stock. "Skystar is a China-based developer and distributor of veterinary healthcare and medical care products. Skystar has four product lines (veterinary medicines, microorganisms, vaccines and feed additives) 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."

See Company Presentation

See S-1 Filing

Q1 2009 Press Release

From the S-1 they are approved for the Nasdaq pending this 1m share offering. - "We have been approved for listing of our common stock on the NASDAQ Capital Market under the symbol “SKBI”, pending the final determination of the public offering price for the common stock offered hereby."

Current outstanding shares are 1.9m per Bloomberg and should be 2.9m after the offering. Page 39 of the S-1 shows that insiders and funds own approximately 1.4m shares. So after the offering the float should be approximately 1.5m if my calculations are correct. See Bloomberg

Mind Boggling Numbers - In the S-1 filing, Skystar reported $3.07 EPS for FY 2008 and $0.57 EPS for First Quarter 2009. Revenue was up 70% in FY 2008 vs. FY 2007. Revenue was up 42% and Net Income was up 73% in the First Quarter of 2009.

More Mind Boggling Growth - From the S-1 "Manufacturing Facilities. We intend to complete a vaccine manufacturing facility with approximately $2.5 million from the net proceeds of the offering. Under our current plans, this facility is expected to be completed by the fourth quarter of 2009 and obtain GMP certification in late 2009. Once completed, we believe that this facility will increase production capacity by 6 billion units, or 2,300.0% from 250 million units, with a value of $14.0 million in projected revenue at a gross margin rate of 60-70%.

Additionally, we are planning to construct a new production facility for micro-organism and feed additives with approximately $1.5 million from the net proceeds of the offering. Under our current planning, the annual production capacity of this production facility will be approximately 4,000 metric tonnes, an increase of 48.7% from our current capacity of 8,200 metric tonnes. We anticipate construction to complete in the fourth quarter of 2009."

By my calculations, with the addition of these two facilities the Company will have the potential to add up to $14m additional revenue at 60-70% gross margin rate from vaccines and approximately $3m in feed additives (facility increases capacity by 49% and they did $5.9m in this category in 2008 at a 65% blended gross profit margin - see Presentation). If they can produce and sell this extra capacity I calculate that as an additional $10m in gross profit. In Q1 2009 the Net Income margin was around 28%. So this extra capacity (if produced and sold successfully and at these same margins) could add another $1 EPS in 2010 by my calculations.

In 2008 (see the presentation and the S-1 they did $3.07 EPS on the shares outstanding), Skystar had $5.6m of net income that included $1.1m of non-recurring expenses, or $6.7m adjusted net income. If I divide that by the new post-IPO share count of approximately 2.9m, I get EPS of $2.31. Now, in the first quarter of 2009, net income was up 72% YOY. If the Company hypothetically can even grow net income by 30% for all of 2009 over 2008, that $2.31 would go to $3.00 EPS with the new shares offered.

In 2010 IF and I say IF they have these new facilities in place and produce and sell with the above assumptions from the S-1 that COULD calculate to another $1 EPS. Going by my calculations (and it is just my calculations not a prediction or guarantee), I see a scenario where IF all falls into place perfectly (not saying it does) this company could do $3+ EPS in 2009 and $4+ in 2010. (Not to mention potential growth from the many products they have awaiting approval) You can use your imagination with a 10-20 P/E ratio. Again, this is what I see as potential when I look at their numbers and information, not a prediction or guarantee.

Lastly, according to the Company website, they are also working on an Avian flu vaccine for the birds themselves. "While larger international companies are focusing on vaccines to prevent people from catching avian flu, Skystar's focus is on vaccines to be administered to farm chickens and other poultry to prevent them from catching H5N1 Avian Influenza. This type of vaccine is well within Skystar's current scope and expertise and could potentially prevent an epidemic/pandemic by controlling an outbreak at the source (the poultry)." See Website

After doing this research, this Company seems to me to certainly have the potential to be another EFUT or even better.

This is just my opinion and not investment advice.

I am long SKBO.OB