Rodobo (RDBO) on target

They just filed.
Net Sales:

Net sales for the six months ended March 31, 2010 were $25.4 million, an increase of approximately $10.2 million or 67.5%, compared to net sales for the six months ended March 31, 2009. This increase was primarily driven by volume growth, with the average selling price remaining relatively flat over both periods. We continued our efforts to develop distribution networks and expand the market areas in the seven provinces in which we currently sell products through our sales and administrative office in Beijing. The increase was also attributed to the newly launched Peer product series, which generated $8.7 million of sales for the six months ended March 31, 2010. The Beixue Group, contributed $5.5 million in sales for the six months ended March 31, 2010.

Gross Profit:
Our gross profit increased approximately $4.5 million for the six months ended March 31, 2010, an increase of 66.7% compared to the gross profit for the six months ended March 31, 2009. The overall gross profit margin remained almost flat at 44.5% for the six months ended March 31, 2010 compared to 44.7% for the six months ended March 31, 2009.

Our overall gross profit margin was diluted due to the recent acquisition of lower-margin business. The Beixue Group has a gross profit margin of 8.4% for the six months ended March 31, 2010. Excluding the margin dilution impact of the acquisition, the gross profit margin actually improved from 44.7% for the six months ended March 31, 2009 to 54.4% for the six months ended March 31, 2010, primarily driven by the Peer product line, which has a gross profit margin of 68.7% and accounted for approximately 43.6% of total sales (excluding sales from the Beixue Group) in the six months ended March 31, 2010.

Net Income:
We achieved $6.1 million of net income for the six months ended March 31, 2010, an increase of $3.0 million (approximately 99.2%) compared with $3.1 million for the six months ended March 31, 2009. This increase in net income was mainly attributable to the increase in net sales, partially offset by an increase in cost of goods sold and operating expenses. This increase in net income was also attributable to a $1.7 million of gain on bargain purchase in connection with the acquisitions of the Beixue Group. There was $0.3 million of non-recurring subsidy income from the government in the six months ended March 31, 2010 compared with $0.4 million of subsidy income in the six months ended March 31, 2009.
Outlook

Over the next twelve months, we intend to pursue our primary objective of increasing market share in the China dairy industry. We are also evaluating acquisition and consolidation opportunities in China’s fragmented dairy industry. We believe that we have sufficient funds to operate our existing business for the next twelve months. We usually finance our operations from funds generated by operating activities. However, in addition to funds available from operations, we may need external sources of capital for our expansion. There can be no assurance that we will be able to obtain such additional financing at acceptable terms to us, or at all.

Harbin Rodobo is entitled to a tax holiday of five years for full Enterprise Income Tax exemption in China. The preferential tax treatment commenced in 2005 and will expire on December 31, 2010. Qinggang Mega is qualified for tax exemptions due to a PRC tax preferential policy for the agricultural industry. Hulunbeier Hailaer Beixue was entitled to a tax holiday of three years for full Enterprise Income Tax exemption in China. The preferential tax treatment for Hulunbeier Hailaer Beixue expired on December 31, 2009 but has been extended for another three years. The estimated tax savings for the three months ended March 31, 2010 and 2009 amounted to $1.0 million and $0.3 million, respectively. The net effect on basic earnings per share had the income tax been applied would decrease earnings per share from $0.18 to $0.14 for the three months ended March 31, 2010, and from $0.83 to $0.63 for the three months ended March 31, 2009.

Earnings per share for the first 6 months were $ 0.31, three months ending March 31 was $ 0.17. They are still on target to deliver an EPS between $ 0.70 - $ 0.80. The distribution of their high margin products has to be top priority to meet my target.  

POSITION: LONG (ENTRY: $ 2.40)