Wuxi (WX) IPO August 14, 2007 14 dollars Current Price 30 on December 13, 2007 What they do Wuxi is the leading China-based pharmaceutical and biotechnology R&D outsourcing company. The company initially consisted of discovery chemistry services, however as they established a track record of customer satisfaction they expanded their services to provide a broad and integrated portfolio of laboratory and manufacturing services to pharmaceutical and biotechnology companies. Their vision is to be become the dominant value added player in assisting pharmaceutical and biotechnology companies reduce the time and cost for drug discovery and development. Competitive Advantages Take advantages of China's large talent pool in science, relatively low-cost labor (scientists in China makes 20% what they make in US), developed infrastructure and favorable government incentives providing electricity, land and tax advantages. Differentiated against other Chinese competitors because of wide and growing gap in terms of increases in revenue and number of customer win (9 out of top 10 pharmaceutical companies are clients). Strong retention and acceptance rate as top scientists perceive Wuxi as preferred place to work. Yearly Financials in millions Income Statement 2006 Growth Rate 2005 Growth Rate 2004 Sales 66.9 98% 33.8 62% 20.9 Gross Profit 34.3 87% 18.3 58% 11.6 Net Income 8.9 46% 6.1 42% 4.3 Margins Gross Margin 51% 54% 56% Net Margin 13% 18% 21% For 2007 forecasting between 131 to 135 million representing top line growth of 96%-101%. Growth attriributed to signing more clients and increased services offered to existing clients. The net margin decreased dramatically in 2006 because of tax benefits not because of uncontrolled SG&A costs. Cash flow Cash flow from operations has been constitenly higher than net income for example in 2006 net income was 8.8 million but cash from operations was 15.3 million Quarterly Financials and recent highlights 07 3rd Qtr Growth Rate 06 3rd Qtr Sales 34 77% 19.2 Gross Profit 16 76% 9.1 Net Income 8.6 207% 2.8 Margins Gross Margin 47% 47% Net Margin 25% 15% Have worked with 80 customers so far in 2008 (up from 70 last year), including nine of the top ten global pharmaceutical companies (based on market cap) and have experienced 100% repeat business from our top ten customers over the last three years. Balance Sheet after IPO They have 212 million in cash after latest IPO and only 49 million in current debt and 46 million in long term convertible debt. There are 55 million ADS shares outstanding with a float of slightly over 13 million ADS shares with the rest being owned by management and well know venture capital firms such as Fidelity. Each ADS share is convertible to 8 ordinary shares. The company plans to use 40 million for expansion of their Jinshan facility and another 40 million for construction of a preclinical drug safety evaluation center in Suzhou and the rest of the cash will be for general corporate purposes and working capital needs. Bottom Line Volatile stock surging to 45 by early October only to pull back below 50 day line to 30 a share. A perfect retention rate with current pharma companies with continual up selling opportunities for critical value added services on top of attracting new clients should provide strong top line growth for years to come. Company's focus on efficiency should provide leverage both at the COGS and SG&A levels creating earnings growth faster than revenue growth. Estimated earning 73 cents in 2008 and with an earnings growth rate of 50% for the next several years creates a 55 dollar price target based on a 1.5 PEG ratio. We assign a relatively high 1.5 PEG ratio because of dominant market position in industry, rapidly expanding market, exceptional growth, high visibility, strong barriers to entry and insulation from a macro growth slowdown concerns. At current levels this suggests 83% upside.