"Shanghai-based Wuxi PharmaTech (NYSE: WX), a new addition to our model portfolio, is a bargain," says China region expert Jim Trippon.
In his The China Stock Digest, he explains, "In a nutshell, WuXi performs pharmaceutical R&D on a contract basis for paying clients; it provides services to nine of the top ten pharma companies in the world."
"\WuXi PharmaTechprovides laboratory and manufacturing services throughout the drug and medical device R&D process to pharmaceutical, biotechnology and medical device companies worldwide.
"Because Chinese researchers receive much smaller paychecks than their Western counterparts, WuXi is able to assist its global partners in shortening the drug discovery cycle and lowering the cost of drug and medical device R&D.
"Although WuXi has deep expertise in biotechnology, there’s no need to be concerned about the risky and failure-prone arena of entrepreneurial drug discovery.
"WuXi has more than 3,300 employees in China and several U.S. cities. The firm’s senior management team consists of Ph.D.s and MBAs; management has more than 200 patents pending or granted, and has published more than 800 scientific publications.
"WuXi’s U.S.-based facilities are all FDA-registered, including a 63,000 square-foot R&D and manufacturing facility in St. Paul, Minnesota, a 46,000 square-foot testing facility in Atlanta, and a 75,000 square-foot R&D and testing and manufacturing facility in Philadelphia.
"WuXi boasts that most of its customers return to the firm after the completion of a research contract for additional and often larger and longer-term projects.
"Indeed, each of WuXi’s top 10 customers over the last three years continues to be its customer today, a fact that speaks well of the firm’s skill, efficiency and respect for intellectual property.
"Its earnings reflect a successful business and scientific strategy. In its most recent earnings report Wuxi announced that fourth-quarter 2008 net revenues from continuing operations increased 74% to $64.4 million compared to the same period a year ago.
"Full year 2008 net revenues for continuing operations grew 87% year-over-year to $253.5 million. Wuxi’s gross profit grew 27% to $20.3 million in fourth-quarter 2008 and rose by an impressive 53% to $96.3 million for the full year of 2008.
"Although Wuxi enjoyed strong revenue growth during 2008, the worldwide recession hurt its biologics manufacturing business and contributed to a decline in margins by slightly more than 10%.
"Despite problems with this one division, Wuxi’s performance remains stellar and there is no reason to expect the company to trade below book value.
"With its heady and steady increase in earnings, WuXi is very attractively valued with a PE multiple of only 9.17. The company is a real value play in the Chinese high-tech sphere. We have an estimated sell price of $15.'
