Attention China Investors: BSPM An Easy Double For Smart Money

Biostar Pharmaceuticals, Inc. recently popped up on my radar screen and the more I've looked into this Company, the more compelling shares of BSPM have become. After taking a hard look at the numbers, I'm convinced BSPM has tremendous room for price appreciation and could follow the other winners I've been trading for several years now. 

There's been a dearth of companies companies coming off the more obscure OTC Bulletin Board and finding their way to the NASDAQ.

Of the roughly 125 China based companies trading on the NASDAQ, a high percentage had humble beginnings. Why? Glad you asked.

There's a whole cottage industry of merchant bankers specializing in what is commonly referred to as "RTOs"- Reverse Take Overs. This is a process by which a formerly private company goes public by merging into a public shell. It's a fast track way to go public, but doesn't come with underwriter open market support or any capital.

Once publicly traded, capital can be obtained with relative ease for quality stories. This was a very popular way for many smaller Chinese companies to find their way to the US public markets in the last 5 years. Lured by promises of access to capital, a previously unheard of condition in China, a great many companies took this route to the public markets.

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Here's what happens to the good ones- the company get a NASDAQ or AMEX listing, and the institutions pile in as soon as their charters allow them to buy the stock. A few examples include big movers like RINO, CEU, TPI, and UTA- all big money makers for investors who jumped in before uplistings off the Bulletin Board.

Biostar Pharmaceuticals, Inc. (OTCBB: BSPM) looks like it could follow these and many other names from rags to riches. BSPM is notching monster profits and growth by helping solve one monster problem- the spread of Hepatitis B in China.

World wide, HepB kills about 1.2 million people annually. Hepatitis B is a virus, and most individuals who become infected with the virus eventually fight it off with their immune system.

The dark green areas on this map show where Hep B effects more than 8% of the population. In China, about 10% of the population is infected with the HepB virus, which equates to 130 million candidates for treatment.

Once infected, patients start showing symptoms in 1 to 6 months. Early on the disease virus induces nausea and vomiting, loss of appetite, fatigue, and muscle and joint aches. 50% of children and 5% of adults who have the virus develop chronic HepB.

If you're body is unable to mount an effective immune response, HepB does significant damage to the liver, which in extreme cases will lead to death.

There are two ways to treat patients infected with HepB in China. Interferon, a common treatment in the US, is very expensive. Without nationwide health care, Interferon is far too expensive for the average Chinese citizen.

Stepping in is Biostar Pharmaceuticals Inc (OTCBB: BSPM). Biostar is the only Chinese company with an SFDA (Chinese version of our FDA) approval to market an over-the-counter treatment for HepB.

It runs just over $1 per day, and has been proven highly effective in clinical trials. BSPM's Xin Aoxing Oleanolic Acid Capsule is the only product on the market that treats chronic hepatitis B disease at a price most Chinese can afford.

It's a natural herbal remedy that stops the virus from replicating, thereby preventing any major liver damage. In a trial conducted at Shaanxi People's Hospital Clinical, the researchers found the Xin Aoxing Oleanolic therapy to be 93.1% effective vs the more common Ganfukang tablet manufactured by Zili Pharma.

55% of the $36.2 million in revs BSPM delivered in the first 3 quarters of '09 (about $20 million) were derived from Xin Aoxing- the HepB treatment. The rest of BSPM revenues come from a diversified product mix two prescription medications and two otc formulas.

Currently, BSPM has the only OTC treatment for HepB, and the least expensive one available in China. HepB treatment in China is a $7 billion market, so BSPM has only scratched the surface.

The company is located in Xianyang in the Shaanxi Province.It boasts and entire campus, with 425 employees work on the manufacturing lines in these buildings along with 38 technicians and 40 office staff. BSPM has 80 acres of planted raw materials and 1500 acres of indigenous raw materials located in close proximity to their campus.

The efficiency of their operations allows the company to have an maintain outstanding margins. Through 9 months of '09, BSPM was able to deliver $36.2 million in revenues and $8.8 million in net profits.

Here's more numbers. There are 27.2 million shares fully diluted. At the recent $4 closing price, it's about a $100 million market cap.

Here's some eye opening historical financial data:

• In Q3, BSPM delivered $15,556,345 in revs, up from $7,541,534 in Q3 '08- up 106%
• For first 9 months of '09, revs were $36,249,051, up from $23,772,567 the first 9 months of '08- up 52%
• Profits in Q3 '09 were $3,126,146, up from $559,183 in Q3 '08- up 459%
• Profits for first 9 months of '09 were $8,810,355, up from $4,138,279 firs 9 months '09- up 112%
• EPS though 9 Months of '09 was $.37 per share

Revenues in the last reported quarter were up 100%. Profits were up 459%. A monster growth company- very strong.

The company grew 17% from Q2 '09 to Q3 '09. If they can repeat the performance for Q4, the top line would be about $18.1 million, and the bottom line about $.17 in EPS.

So, making the assumption the company can deliver $.17 in EPS in Q4, your CY'09 EPS is $.54 per share with a top line growth of about 55% and 100% profit growth.

In case you haven't followed all this math, here's the double bottom line. Earnings per share should come in around $.54 for 2009 once reported in the next few weeks. Their EPS in 2008 was $.22- that's 145% improvement year over year.

Now, I don't know where you might have learned about valuation, but from the old school, companies with 50% top line growth, 100% bottom line growth, and $.54 in EPS don't trade at $4.

In fact, a US based company on the NASDAQ delivering these kinds of numbers would likely trade at about $15 per share. Since it's a China based company and still on the bulletin board, it will they trade less efficiently. One can surmise it might be likely to garner half the valuation- that's still $7.50 per share. Then, when the company gets its inevitable NASDAQ listing- look out. The institutions that can't buy the stock on the BB will have to buy your shares at a much higher price. Therein lies the opportunity.

Full Disclosure: I own 10,000 shares with a cost basis of around $3.75. My business partners have bought about another 7,000 shares. I'm looking for $7 to $9 after a NASDAQ listing to take profits. I'll continue accumulating as money allows up to about $5, but any of us might buy it or sell it anytime we want without advance notice. I have no relationship with the company.

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