I looked into American Oriental bioEngineering (AMEX:AOB) today, and also took a look at its products, here are my preliminary opinions:
They had a "not good enough" 3Q. Despite the top line increased 81.9% YoY or 12.6% QoQ, cost of goods sold increased a lot, resulting in a decrease in gross margin YoY. Moreover, as the company is trying to position itself as a recognizable entity in China for plant-based herbal remedies, their operating expenses jumped up as well, which resulted in a decrease in operating magin YoY. Top line did not move compared to the previous quarter.
Given the integration of HSPL's products and its strategic decision of geographically expanding the PBP and PBN products, AOB's increases in expenses seemed to be sensible. And I went on AOB's websites, both English and Chinese versions (Chinese version is available at http://www.biosly.com , a different entity called "Harbin Three-Happiness Bioengineerings Holding Co. Ltd.), first feeling was that I (and friends in China) have never heard of the company, nor did its products. However, as the Company stated in the 3Q report, it had star products both for PBP and PBN. So I may expect to see their operating expenses to remain high in order to improve its recognition in China.
AOB was very successful this year, regarding to the listing on AMEX in July, and the listing on CBOE on Dec 1. Their visibility and liquidity, as a result, improved a lot. Looking at AOB's financial ratios, the Company is growing, profitable and under good management. But given no major long-term debt, its liquidity is below industry average.
Looking into AOB's chart, price hovering arround 100DMA, and 100DMA is positive while 50DMA is neutral. RSI is negative, whereas MACD(12,26) croseed above MACD EMA(9), showing some support.
Finally, I noticed that AOB just completed its private placement, with each unit priced at $4.80 and the gross proceeds of approximately $60 million. Mr Tony Liu, the chairman and CEO of AOB, commented "company plans to use the proceeds for general corporate purposes and seeks to identify accretive acquisition targets within our industry to diversify our product line, accelerate our growth and more effectively leverage our distribution channels." But still, there is a question mark on this strategic activity, what if the results are worse-than-expected?
For the above reasons, I would like to give AOB a HOLD rating.
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