China Agri Business (CHBU) Q2 results excellent

Sales for the three months ended June 30, 2010 totaled $3,452,574, an increase of $2,748,699, or 391%, as compared to sales of $703,875 for the three months ended June 30, 2009. Sales of our internally made products increased $397,102 to $1,100,977 for the three months ended June 30, 2010 from $703,875 for the comparable period in 2009. Retail sales of fertilizer products in our direct sale stores was $2,351,597 for the three months ended June 30, 2010, compared $0 in the comparable period of 2009.

The increase in sales was primarily attributable to positive reponses to our “New Agriculture-Generator” campaign, which was designed to expand our distribution network directly and to establish a closer relationship with farmers through agricultural cooperatives in the rural areas of China. Sales from our direct sales stores amounted to $2,764,522, approximately 80% of total sales in the three months ended June 30, 2010. Sales from our super chain branded stores amounted to $185,864, approximately 5% of total sales in the three months ended June 30, 2010, an increase of $57,479, or 45%, as compared to $128,385 in the same period of 2009. Sales from our traditional sales network amounted to $502,188, a decrease of $73,302, or 13%, as compared to $575,490 in the three months ended June 30, 2009. As of July 31, 2010, the Company had established 346 direct sales stores which are controlled and managed directly by the Company, and approximately 100 super chain branded stores. The majority of these direct sales stores and branded stores were located in the Shannxi Province (local province) and some of these stores were located in the Hunan and Sichuan Province.

Cost of goods sold for the three months ended June 30, 2010 totaled $2,244,930, an increase of $2,056,278, as compared to cost of goods sold of $188,652 for the three months ended June 30, 2009. Gross profit was 35%, a decrease of 38 percentage points from 73% for the three months ended June 30, 2009. The increase in cost of goods sold and decrease in gross profit margin was attributable to our new sales model and new direct sales stores. The gross profit margin of our internally made products was 67% and 73% for the three months ended June 30, 2010 and 2009, respectively. The decrease in gross profit margin on our internally made products was the result of the production of our new acquired potassium and magnesium fertilizer product which has a gross profit margin rate of 50%. The gross profit margin for our retail sales of fertilizer products from other manufacturers in our direct sale stores was 22%.

Our income from operations was $801,811 for the three months ended June 30, 2010, an increase of $505,382, or 170% as compared to $296,429 for the three months ended June 30, 2009. Net income for the three months ended June 30, 2010 was $753,221, an increase of $506,320, or 205% as compared to net income of $246,901 for the three months ended June 30, 2009. The increase in net income primarily resulted from our “New Agriculture-Generator” campaign, which consisted of expansion of our direct sales store network.

Conclusion in my previous post I was in heaven and I thought they could have the same profit margins compared to Q1. So an EPS Q2 of $0.12 was not realistic. My initial projection for the year 2010 was an EPS of $0.12. Net income for the six months ended June 30, 2010 was $1,085,029. So that gives us $0.08 ($0.05 Q2)for the first half. I raise my projections for Q3 to $0.04 and Q4 to $0.05. So the final 2010 EPS would become $0.17.

With a book value of $0.88 and a cash position of $0.80 per share this is a valuable investment. 10x trailing EPS will give us a target price of $ 1.70.

POSITION: LONG