3S Bio ( Nasdaq - SSRX ) -- Follow-up Report

3S Bio (SSRX $18.00) reported excellent on target Q1 results.  Sales advanced 28% to $18.1 million.  The rising Chinese currency accounted for 5% of that increase.  If the RMB keeps advancing against the U.S. Dollar further translation benefits will accrue.  Earnings dipped to $.15 a share.  Higher depreciation charges on the company's new manufacturing facility impacted profit margins.  That plant quadrupled 3S Bio's capacity, of which 30%-35% currently is being used.  The company also increased wages, hired more sales people, and lifted R&D spending on new drugs.  3S Bio additionally laid the groundwork to increase export operations, targeting emerging markets like Malaysia, Turkey, South Africa, and Egypt.  The company will take on Western pharmaceutical makers with lower cost alternatives.  3S Bio is one of the few companies in China that already has the ability to compete head to head with Western corporations on the world stage.  The combination of top notch science and low costs promise to fuel growth even after the government protections that help run of the mill Chinese companies fade over time.

Our 2011 estimates are unchanged.  Earnings could reach $.75 a share on sales of $80 million.  Margins should improve in upcoming periods as volume increases and costs stabilize.

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