Investment summary: Progress continues
Solid performances in the China Healthcare operations highlight the strength of the investment case and underpin the valuation. However, it is developments in the MediPharma R&D unit that will increasingly be the focus of investor attention. Realising value from the land assets provides an additional fillip to cash flow and will help fund further expansion. We raise our valuation from £292m to £346m to reflect the progress achieved.
FY12 results show momentum is building
Hutchison China MediTech's (HCM.L) consolidated revenues grew 18% to $195.4m, with underlying operating profit up 79% to $12.1m and attributable net profit increasing from $2.1m to $6.8m. The loss from discontinued non-core consumer operations (mainly Sen UK) meant reported net profit rose from $0.7m to $3.6m. Underlying performance was driven by continued growth in China Healthcare, where revenues grew 29% to $350.5m and net profit 11% to $15.5m. The prescription drug side grew sales by 26%, while the combined OTC operations (both own brands and third-party) were up 34%.
MediPharma oncology pipeline showing promise
While the HMPL-004 JV with Nestle was the highlight in 2012 (Phase III enrolment for ulcerative colitis is imminent), we feel the progress of the oncology portfolio will elicit most medium term interest. MediPharma has five innovative small molecules progressing through Phase I studies. The focus is to develop compounds that are best- or first-in-class, and partner them globally (eg volitinib with AstraZeneca) or, if poorly differentiated from current products, to develop rapidly for the Chinese market (where speed to market and pricing may be commercial advantages).
Land value windfalls provide funding for expansion
The local population growth means both the Guangzhou and Shanghai factories are now prime residential locations. The windfalls from realising the property values should amply fund the relocation to expanded (and upgraded) production sites.
Valuation: Raised from £292m to £346m
The diversity of businesses, and their differing stages of development mean that we employ a sum-of-the-parts valuation that includes earnings multiples as well as an rNPV model for the R&D unit. The progress achieved implies a market cap valuation of £346m (up from our previous £292m), with scope for additional upside if further elements of the R&D pipeline are partnered.
To Read the Entire Report Please Click on the pdf File Below.
Solid performances in the China Healthcare operations highlight the strength of the investment case and underpin the valuation. However, it is developments in the MediPharma R&D unit that will increasingly be the focus of investor attention. Realising value from the land assets provides an additional fillip to cash flow and will help fund further expansion. We raise our valuation from £292m to £346m to reflect the progress achieved.
FY12 results show momentum is building
Hutchison China MediTech's (HCM.L) consolidated revenues grew 18% to $195.4m, with underlying operating profit up 79% to $12.1m and attributable net profit increasing from $2.1m to $6.8m. The loss from discontinued non-core consumer operations (mainly Sen UK) meant reported net profit rose from $0.7m to $3.6m. Underlying performance was driven by continued growth in China Healthcare, where revenues grew 29% to $350.5m and net profit 11% to $15.5m. The prescription drug side grew sales by 26%, while the combined OTC operations (both own brands and third-party) were up 34%.
MediPharma oncology pipeline showing promise
While the HMPL-004 JV with Nestle was the highlight in 2012 (Phase III enrolment for ulcerative colitis is imminent), we feel the progress of the oncology portfolio will elicit most medium term interest. MediPharma has five innovative small molecules progressing through Phase I studies. The focus is to develop compounds that are best- or first-in-class, and partner them globally (eg volitinib with AstraZeneca) or, if poorly differentiated from current products, to develop rapidly for the Chinese market (where speed to market and pricing may be commercial advantages).
Land value windfalls provide funding for expansion
The local population growth means both the Guangzhou and Shanghai factories are now prime residential locations. The windfalls from realising the property values should amply fund the relocation to expanded (and upgraded) production sites.
Valuation: Raised from £292m to £346m
The diversity of businesses, and their differing stages of development mean that we employ a sum-of-the-parts valuation that includes earnings multiples as well as an rNPV model for the R&D unit. The progress achieved implies a market cap valuation of £346m (up from our previous £292m), with scope for additional upside if further elements of the R&D pipeline are partnered.
To Read the Entire Report Please Click on the pdf File Below.