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Big daddy investors are important in emerging markets as they protect and nurture often unlikely offspring. For example, Hutchison China MediTech (Chi-Med) was an odd mixture of medicine, drug and retail interests when it floated in 2006 - and still is. But, crucially, it has the support of Asian conglomerate Hutchison Whampoa (72 per cent holding) and its first drug milestone payment dramatically reduced cash burn in the six months to end-June.
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Chi-Med's main business is selling herbal medicines through most of China and prescription drugs in the main eastern cities. In the half year this business increased sales by almost $10m to $53.15m (£32.2m), and cash profits by $2.23m to $9.48m. More drug trail work enabled the drug research division to reduce its loss from $8.04m to $5.23m after capitalising $2.76m development work on a botanical treatment for inflammatory bowel disease. And, with some 200 western trained full-time scientists and staff, this business is now attracting the attention of western drug majors. Indeed in the half year it received its first milestone payment of $5.6m.
The smallest operation is a loss-making retail business selling herbal and beauty products through nine shops in London and now via 125 Marionnaud shops in France. They are owned by Hutchison, there are more than 1,000 in France and Hutchison has perhaps eight times as many herbal and beauty outlets worldwide.
Full-year normalised losses were forecast to fall from $14.8m to $11m and sales expected to rise from $87m to $107.4m, but Investec Securities is likely to upgarde its estimates in light of the results.
HUTCHISON CHINA MEDITECH (HCM) |
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|---|---|---|---|---|
| ORD PRICE: | 80.5p | MARKET VALUE: | £ 41.2m | |
| TOUCH: | 78-83p | 12-MONTH HIGH: | 126p | LOW: 35.25p |
| DIVIDEND YIELD: | nil | PE RATIO: | NA | |
| NET ASSET VALUE: | 142¢ | CASH: | $39.6m | |
| Half-year to 30 June | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Net div per share (¢) |
|---|---|---|---|---|
| 2008 | 45.9 | -4.00 | -12.43 | nil |
| 2009 | 56.7 | 0.32 | 5.18 | nil |
| % change | +24 | – | – | – |
Aim: Pharmaceuticals £1 = US$1.65 |
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Chi-Med is difficult to value but it’s certainly worth more than its £40m market capitalisation. Speculative buy.
Last IC view: Good value, 52p, 17 March 2009
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