UP-TREND OUTLOOK: DEER, BJGP, ERII : Small Cap Stock Analysis : SmallCap Network

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DEER: Stock grows from $8 to $18 in 3 Months

BJGP: Climbs on strategic partnership with Pfizer in China

ERII: Saltwater to Freshwater in the Middle East

Gaining 7.67% this morning is Deer Consumer Products Inc., (DEER) currently trading in the $17.52 range. DEER easily passed its 3-Month average trading volume this morning as 'Black Friday' is prime time test for the Chinese appliance maker. This is a near-term (3 Mo) 'Buy' stock for me based on past earnings. On $60 million in trailing twelve month revenues, DEER produced a corresponding $0.32 in diluted EPS and a quarterly earnings growth y-o-y of 167%. DEER went from $8 to $18 in the last 3 months and the holiday season could push it over $21. It's not too late to make money on this stock: The Recovery, if it remains broad-based, could spike it into the $24-25 range.

DEER posted Q3 2009 results earlier this month: net income up 168% to $4.12 million and $26.54 in revenues; up 130% from Q3 2008. DEER management also affirmed its previous guidance for FY 2009 of approximately $81 million in revenues and approximately $10.5 million in net income. In 2008, DEER reported US GAAP audited revenues of $43.8 million, net income of $3.4 million. That's a big jump.

Bill He, the DEER Chairman & CEO said, "Our global customer base (40 countries), as well as Chinese domestic sales channels, responded positively to the improved global economic environment."

Based in China, DEER makes and sells home and kitchen electronic appliances like: blenders and juice extractors, soymilk makers, popcorn makers, meat grinders, rice cookers, electric water kettles, pressure cookers, and other food processors. DEER has more than 103 patents. DEER has more than 100 global and domestic clients that brand their products including: Black & Decker, Ariete, Disney, Toastmaster, Magic Bullet, Back to Basics, and Wal-Mart. 'BUY'.

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Gaining 6.89% this morning is BMP Sunstone Corporation (BJGP) http://www.beijingmedpharm.com/ currently trading in the $4.50 range. BJGP also easily topped its 3-Month average daily trading volume this morning. On $142 million in trailing twelve month revenues, BJGP has a 52-week high of $6 set on 11-28-08. This drug maker is a near-term 'Watch Closely' for me. It does have a 3-Month floor at $3.80 with strong support at $4. It frequently spikes into the $4.40 range (like today) and I think positive news on its Endometriosis treatment deal with BigCap Pfizer will signal a buy for me at the $5 level.

On November 10, BJGP entered into an exclusive strategic partnership with Pfizer to import, distribute and promote the Pfizer drug Depo-Provera in China. Endometriosis is a medical condition in women of childbearing age that can cause significant pain.

"This deal establishes a partnership that utilizes BMP Sunstone's unique insight in the women's healthcare market, as well as the company's proven expertise in marketing niche pharmaceutical products to underserved patient populations in China," said Dr. Wu Xiao Bing, Pfizer China Country Manager. "In China, our mission is to meet the diverse medical needs of the country's 1.3 billion population in an innovative, socially responsible and commercially viable manner. We offer a broad portfolio of innovative medicines, actively partnering with healthcare providers, academics, and authorities to serve Chinese patients and to support the rapid development of the country's healthcare system."

BJGP sells drug products in approximately 120,000 pharmacies in China. "We are expecting to make Depo-Provera one of the cornerstone products at BMP, and for it to drive our business growth as we introduce it to the marketplace," said Gao Xiao Ying, CEO and Director of BJGP.

On November 9, BJGP released its Q3 2009 numbers: revenues increased to $33.6 million from $30.5 million in Q3 2008 with gross margins increasing 46.6% over a 45.3% increase in Q3 08 and Non-Gapp net earnings in Q3 09 were a positive $0.03.

bjgp ERII

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Gaining 5.34% this morning is Energy Recovery, Inc. (ERII) http://www.energyrecovery.com/ currently trading in the $5.83 range. ERII is a heavily traded SmallCap stock. With a 52-week high of $9.75 set on 12-18-08, this is also a 'Watch Closely' stock for me in the near-term. Currently priced at a little more than half its high, there's money to be made here. ERII does have trailing twelve month revenues of $53 which produced a positive, $0.14 diluted EPS during the 'great recession' and that is a big plus to me. ERII has a 3-Month floor of $5.40 and spikes to $5.80 and over. If it could establish a threshold at $6, it could turn into a short-term (6 Mo) buy for me.

I like ERII and what it does: On November 9, the Company launched its Quadribaric technology for energy recovery from desalination, advancing its mission to make seawater desalination an affordable solution to addressing the world's clean water shortages. Embedded into the latest PX Pressure Exchanger line of rotary energy recovery devices, Quadribaric technology uses a patented new design that revolutionizes the way PX devices work, essentially doubling the work load of each device, with greater efficiency than any energy recovery device on the market.

Nikolay Voutchkov, president of Water Globe Consulting said, "I would expect the PX-300 to become the new 'standard' for energy recovery equipment in medium and large-size desalination plants."

The ERII Energy Recovery PX device (a high pressure reject stream of seawater reverse osmosis system that operates at up to 98% efficiency) is used in hundreds of desalination plants around the world. More than 7,000 PX devices are currently deployed or under contract to be installed at desalination plants across the globe. With the new Quadribaric technology, each ERII unit shipped will mean even greater energy savings and environmental benefits, helping meet the growing demand for clean, affordable water supply demands.

On November 5, ERII released its Q3 2009 numbers with net revenue of $9.5 million and a net profit of $550,000 or $0.01 per diluted share. The ERII FY 09 guidance is $0.07-8 EPS and for 2010, management forecasts net revenue will improve by 25% over 2009.

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Update and Outlook for an inquiring reader on DEER

Comment #1 Posted by Dennis Askew Mon Dec 14, 2009 11:16AM PST

# / Rating : 0 / 0.00 - 1 : 2 : 3 : 4 : 5

Update on DEER and Outlook

12-14-09

Thanks for the e-mail sent to me by a reader inquiring about China-based Deer Consumer Products (DEER). I received the e-mail today.

On 11-27, I wrote in part: “This is a near-term (3 Mo) ‘Buy’ stock for me based on past earnings. On $60 million in trailing twelve month revenues, DEER produced a corresponding $0.32 in diluted EPS and a quarterly earnings growth y-o-y of 167%.” The stock was trading in the $17.67 range at the time the article was written.

On 12-11, DEER announced: “... the pricing of a public offering of 6,000,000 shares of its common stock at a public offering price of $11.00 per share. Deer has granted the underwriters an over-allotment option to purchase 900,000 additional shares of common stock at the public offering price. The offering is subject to customary closing conditions and is expected to close on December 16, 2009.”

The offering had a negative impact on the public trading price and the reader asked me:

What is your recommendation? Do we hold, wait out the error and placement? Sell at a very large loss?

For me, the answer is to Hold. My 11-27 comment was a 3-Month ‘Buy’ through the end of February. I spoke with a person at one of the two joint book running managers of the offering for DEER and was informed the $11 offering price was a discounted price for institutions and both book running managers had options to purchase 900,000 additional shares. They also told me any dilution will negatively affect a stock price in the short-term, but since (according to Yahoo) only 3.7% of the public float was owned by institutions, additional investment by brokerages and institutions would strengthen the company in the long run.

I was also informed that the money raised would be used for ‘general expenses’ (per the press release) and that DEER management sticks to their guidance (outlook) of approximately $81 million in revenues and approximately $10.5 million in net income for 2009 ending December 31.

They also pointed out the December 4 press release announcing that DEER had signed an agreement with Suning Appliance, the second largest electronics retailer in China, targeting the 2010 sales of approximately $29.3 million of DEER's products in Suning’s approximately 885 stores throughout China.

The reader also said:

It seems at the discount offered a rights offering would have made more sense.

I agree. However in my opinion, warrants and/or rights attached to treasury stock is generally more cumbersome for hedge and pension funds to process and pre-sold conditions on clean, public shares are easier to move.

The DEER offering doesn’t close until the 16^th. It will be interesting to see what the institutional percentage of ‘shares purchased’ was, if the two underwriters will buy the optional allotments, and what aggregate positions were taken by individual shareholders via the transfer agent.

As always, any SCN reader should adhere to our disclosures and perform their own due diligence.

Thanks again-!


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UP-TREND OUTLOOK: DEER, BJGP, ERII

Deer Consumer Products (DEER) Rides Black Friday; BMP Sunstone (BJGP) Climbs on Past Pfizer Deal; Energy Recovery (ERII) Grows on Desalination Technology.

Update and Outlook for an inquiring reader on DEER

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