Following the introduction of International Reporting Standard IFRS 11, the latest results from Hutchison China Meditech (HCM) are quite different to previous ones. But this change to accounting for joint ventures did not faze investors, who pushed up the share price by 5 per cent on publication of the results.
As in previous periods, all the profit has come from the China healthcare division. That was, in part, thanks to strong demand for cardiovascular prescription drugs and antiviral over the counter pills. In contrast, the game-changing botanical-based drugs division reported a slightly higher loss, even though revenues rocketed, thanks to receipt of several milestone payments from big pharma.
However, the big news is behind the headlines. For starters, a lot of progress has clearly been made on several drug candidates. A joint venture drug with Nestle for treating ulcerative colitis is now in phase II trials, while another wholly-owned drug for treating multiple cancer tumours is not only in phase II trials, but phase III studies start this autumn.
Clearly, drug trials are expensive. So where will more money come from? One answer is to move joint venture healthcare manufacturing out of the centre of Shanghai and Guangzhou. The sale proceeds will cover new plant relocations and total gains (after the state takes 40 per cent) could be significant.
Following significant upgrades, broker Panmure Gordon forecasts 2013 earnings of 9.8¢, rising to 17.3¢ in 2014.
| HUTCHINSON CHINA MEDITECH (HCM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 510p | MARKET VALUE: | £265m | |
| TOUCH: | 505-515p | 12-MONTH HIGH: | 582p | LOW: 353p |
| DIVIDEND YIELD: | nil | PE RATIO: | 48 | |
| NET ASSET VALUE: | 163¢ | NET DEBT: | 8% | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2012 | 10.1 | 4.81 | 5.91 | nil |
| 2013 | 17.6 | 6.65 | 9.00 | nil |
| % change | +74 | +38 | +52 | - |
Aim: Pharmaceuticals £1:US$1.535 | ||||
