Kiwa Bio-Tech Products Group Corp (OTCMKTS:KWBT) has quickly emerged as one of investors’ top picks in the small-cap stock universe in 2020. The stock started January at $0.02 and wrapped up the month at $0.04, representing a 100% return in a space of 30 days. Strong financial results and bright prospects boosted by favorable Chinese government policies can explain investor interest in Kiwa stock. More on this shortly.
OTCMKTS:KWBT is an agricultural fertilizer company based in China. The company develops, manufactures and distributes bio or organic fertilizers. It currently serves the Chinese market. Kiwa aims to reduce the amount of chemical fertilizers used in farming so as to conserve the environment and ensure the safety of farmers and consumers of agricultural produce.
Kiwa’s organic fertilizer products are patent protected, thereby ensuring its competitiveness in organic fertilizers market.
Impressive financial results draw investors to Kiwa stock
OTCMKTS:KWBT has routinely reported impressive financial results, which have go a long way into strengthening investor confidence in the stock. For example, the company reported revenue of $11 million in the third quarter of 2019, representing a growth of 42% year-over-year. That followed 105% year-over-year revenue growth in the second quarter. It posted an operating profit of $1.9 million, which increased 53% year-over—year. That followed 79% year-over-year increase in operating profit in the first quarter.
The continuing robust revenue growth is supplying Kiwa with cash to reinvest in expanding and strengthening the business, such as through introduction of new products and entry into new markets. All these will drive even more revenue growth and better financial results overall down the road.
Chinese government adopts policies favorable to Kiwa
In 2017, the Chinese government launched a program to replace chemical fertilizers with organic fertilizers in Chinese farms. China’s fertilizer replacement program initially targeted vegetable, fruit and tea farms and is expected to include more crops with time.
To encourage uptake of organic fertilizers, the Chinese government said it would set aside funds to provide subsidies for farmers who use organic fertilizers. The goal of the fertilizer replacement program is to ensure safety and high quality of fresh farm produce from China.
Vegetable, fruit and tea farming in China take up 40% of all agricultural fertilizer use in the country. When the Chinese government launched the chemical fertilizer replacement program, it aimed to cut chemical fertilizer use in vegetable, fruit and tea farming by at least 20% by 2020.
As a leading supplier of organic fertilizer in China, OTCMKTS:KWBT stands to reap big from China’s efforts to discourage use of chemical fertilizers in favor of organic fertilizer.
China’s The chemical fertilizer replacement program launched in a few dozen counties and is expected to expand to more counties, thereby expanding the market opportunity for Kiwa. China’s organic fertilizer market presents a $16 billion revenue opportunity for Kiwa.
Kiwa expanding its production capacity to meet strong demand for its products
OTCMKTS:KWBT recently expanded its fertilizer production capacity in response to the growing demand for its brand of organic fertilizers. A newly added production line will increase Kiwa’s annual fertilizer production capacity by 20%. Therefore, the company will now be able to produce 300,000 tons of fertilizer per year.
“We expect our production capacity to now reach 300,000 tons per year. This increase of production capacity will provide strong support for the Company to expand its brand in the China market and help increase future sales,” commented Kiwa CEO Yvonne Wang.
The capacity expansion represents an example of Kiwa reinvesting cash to develop its business for the future.
The growing food safety awareness among consumers is driving demand for organic foods. According to Allied Market Research projections, the global organic food and beverage market is on course to hit $327.6 billion by 2022. The market was estimated at $115.98 billion in 2015. Amazon acquired organic food retailer Whole Foods Market for a whopping $13 billion just to get a foothold in the lucrative organic foods market.
The booming organic food market is fueling demand for organic fertilizer, which is a boon for Kiwa.
Growing at double-digit rate and pursuing $16 billion revenue opportunity in domestic market of China, OTCMKTS:KWBT is everything investors look for in a small-cap stock. And in the case of Kiwa, there are few small-cap stocks if any out there with better outlook, which explains why investors are warming up to the stock.
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Disclosure: We have no position in OTCMKTS:KWBT and have not been compensated for this article.