WuXi Pharmatech Reports Another Healthy Quarter

WuXi PharmaTech (WX), a Chinese contract research organization [CRO] put out another good quarter,
but this stock never seems to trade in a logical manner;<!----> perhaps the
gross margins or lack of "increased" guidance is caused the stock to
fall 3% yesterday. It just might be too small or unknown to be attracting
enough attention or to trade "normally".

• Net revenues increased 68.7%
  to $57.1 million in the first quarter 2008 from $33.8 million in the
  first quarter 2007. This increase was primarily driven by the strong
  organic growth and the addition of US-based services following the
  close of the AppTec Laboratory Services, Inc. acquisition on January
  31, 2008. During the two-month post-acquisition period, our US-based services contributed $11.0 million for the first quarter 2008. (keep in mind some of that growth is not organic, i.e. due to acquisition)
• Net revenues from laboratory services increased 77.4%
  to $38.5 million in the first quarter 2008 from $21.7 million in the
  first quarter 2007, driven by a growing demand for our core discovery
  chemistry and process research services, and testing services from the
  AppTec acquisition.
• Net revenues from manufacturing services increased by 53.3%
  to $18.6 million in the first quarter 2008 from $12.1 million in the
  first quarter 2007, primarily due to an increase in the number and
  scope of projects.
• Overall gross margin was 42.5%
  in the first quarter 2008. Our laboratory services margin was 49.2% and
  manufacturing margin was 28.7% in the first quarter 2008. While our
  laboratory services margin remained robust, the manufacturing services
  margin was affected by the low utilization in our biologics
  manufacturing facility. Looking forward, we expect the utilization rate
  to improve in later quarters. (this is down from previous quarters)
• Net income increased by 131.9%
  to $13.9 million for the first quarter 2008 from $6.0 million for the
  first quarter 2007. Net profit margin increased to 24.3% in the first
  quarter 2008 from 17.7% in the first quarter 2007. Non-GAAP net income,
  as defined below, for the first quarter 2008 grew by 85.3% to $17.3
  million, compared to the non-GAAP net income of $9.3 million in the
  first quarter 2007. Diluted earnings per ADS were $0.19 and non-GAAP diluted earnings per ADS were $0.24 in the first quarter 2008. (analysts at $0.15)

• We maintain our 2008 annual consolidated net revenues guidance in the range from $280 million to $300 million.

While
you could throw ANY Chinese stock out there and say "it will grow, it
has to just by demographics alone" - and to some degree that will be
true, I'm trying to find names which fill more long lasting niches,
especially in the business to business end. After seeing WuXi on Zach's blog in the past few weeks, this one really struck a chord with me. WuXi is a contract research organization [CRO] for companies - think outsourcing. I have invested for my own personal account in a similar company in Ireland called ICON (ICLR),
which if you pull up a 2 year chart only continues to perform year in
and year out. There are also a few slower growing US competitors to
compare WuXi against.