American Oriental Bioengineering’s (AOB) first quarter earnings per share came in at $0.04, well below both the Zacks Consensus Estimate of $0.07 and $0.10 reported in the year-ago period.

Although revenues recorded a 16.7% year-over-year increase to $53.7 million, we remain concerned about the declining operating margin. Prescription drug sales should continue their growth trajectory as China aims to reform its health care sector to incorporate unaddressed rural markets.

However, in the highly fragmented Chinese pharmaceutical industry, AOB’s expenses are likely to increase given the need to stay ahead of its competitors and to meet stringent manufacturing norms. We maintain our Underperform recommendation on the stock.

Zacks Investment Research

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