with a view of reviewing and consolidating the portfolio at the end of the 2009 reporting season in Feb-Mar 2010

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Last week when I reviewed 2009 and looked at an investment strategy for 2010, I highlighted three potential stocks to be included into my stock pick/portfolio for 2010.  The intention was to make the change toward the end of Q1-2010 when the 2009 reporting season was over.  But my analyst commented that all three stocks on my watch list rose 7-8% that day.  Rather than wait for the results and keep the portfolio at its current size, I will include the three stocks in first with a view of downsizing the porfolio when the results are released should any company disappoint or whose share price may have run ahead of earnings.

Let me first start with China Animal Healthcare which manufactures and markets drugs for poultry and farm animals in China. Its a pure S Chip.  Its Q3-2009 results were good and if we annualise the numbers using Q3-2009 as a base – we would be looking at full year 2009 net profit of about RMB 150-160mn – up about 12% from 2008. For 2010 the key will be its acquisition of new drugs.  The Company gave an update on the acquistion of Biwei Antai and JianXiang Hemu on December 28, 2009.  While an extension of the long stop date from December 31, 2009 to March 31, 2010 doesnt confirm completion, it does demonstrate that both parties are keen to pursue discussions further.  The announcements highlight that the “delay” is mainly from the Chinese authorities in terms of licence approvals.  Bearing this in mind, and if the acquisitions are completed, we could see 2010 earnings rise by more than 50%.   There is of course the flavour of a dual listing and the Company has been silent on this.  I would rather focus on the earnings and the acquisitions and treat the dual listing (if it comes – highly speculative now) as a bonus. Read more…