Friday, January 13, 2012

3-S Bio ( Nasdaq - SSRX ) -- Potential Price Reductions in China

3-S Bio (SSRX $9.75) appears on track to report excellent on target Q4 results.  The outlook for 2012 is a little uncertain, however, due to the likelihood of new price regulations by the Chinese government.  The last time that happened a modest cut was implemented but 3-S Bio benefited from a significant expansion in coverage.  Technically speaking, most of China's population now is covered by the national health insurance law.  But a large percentage still aren't taking full advantage of that for one reason or another.  Lack of awareness, bureaucratic inertia, and de facto quotas are primarily responsible.  Another round of price cuts is possible.  But those are likely to be paired with measures to achieve higher unit volume volume.  Margins may narrow a shade but overall profitably is unlikely to be affected.  3-S Bio has products that are capable of competing on the international stage without government support.  It's a high quality operation that promises to thrive over the long haul as China becomes a fully modernized society.  Trading at 11x our estimate of 2012 earnings these  shares offer substantial appreciation potential.

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Thursday, January 5, 2012

Points International ( Nasdaq - PCOM ) -- Fourth Quarter on Track

Point International (PCOM $8.35) appears on track to report excellent on target Q4 results.  The company is based in Canada but presents its financial statements in U.S. Dollars.  We estimate revenues advanced 30%-45% to $35-$40 million, producing fully taxed income of $.10-$.15 a share (+100% to +150%).  Points is the leading provider of loyalty program services.  Major airlines and retailers subcontract with the company to operate those programs under their own names.  Each deal is structured differently, but most include volume sensitive pricing.  December quarter income typically benefits as thresholds are achieved, generating bonus payments.  Our full year estimates assume Points hit the high end of the range.  We estimate revenues climbed 36% to $130 million to provide fully taxed earnings of $.25 a share.

Margins are poised to expand in 2012.  New partners continue to be added.  Existing customers are continuing to expand the scope of their loyalty programs.  New Internet based products were rolled out last year and could yield an incremental boost.  Additional products are likely to be developed.  Points already operates its own website where individuals can swap miles and loyalty points, convert them to different programs, and jointly accumulate them for wedding gifts and other purposes.  That segment still represents just 5% of total sales.  Significant growth might be achieved if the technology is relocated onto social media sites like Facebook.  Interconnections with mobile phones and tablets could yield additional leverage.  We estimate revenues will improve 23% in 2012 to $160 million to provide a 100% income gain to $.50 a share.  Superior growth could be sustained well into the decade.

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