Fears over the state of the Chinese economy have weighed consistently on Hutchison China Meditech's (HCM) share price over the past few months, along with the winding down of its UK Sen Medicine operation. But judging by these interim results, these worries appear to bear little relationship with the company's operational performance, which benefited from lower raw-materials costs and impressive sales growth in its main healthcare division. In fact, the company looks in a particularly strong position now that its research & development programme is self-financing after a deal with AstraZeneca, so buying the shares at a lower valuation could make sense.
Sales at the China Healthcare division, which distributes over-the-counter and prescription medicines in mainland China, grew by 26 per cent cent to $187m (£117m), with operating profits 12 per cent higher at $16.5m. Prescription drugs made up the biggest proportion of this growth, up 30 per cent to $63.4m, because of the success of HCM's own cardiovascular medicine. Total healthcare division sales have more than tripled since 2006. Meanwhile, sales at the over-the-counter business rose by a quarter as it benefited most from lower prices for raw materials. In addition, the company is expanding its production sites in Shanghai and Guangzhou, which should be cost neutral after land compensation is taken into account.
Edison Investment Research is currently forecasting underlying pre-tax profits of $5.9m for 2012, giving EPS of 1.4¢.
HUTCHISON CHINA MEDITECH (HCM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 375p | MARKET VALUE: | £195m | |
| TOUCH: | 365-385p | 12-MONTH HIGH: | 470p | LOW: 172p |
| DIVIDEND YIELD: | nil | PE RATIO: | 78 | |
| NET ASSET VALUE: | 124¢* | NET CASH: | $25.6m | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2011 | 82.3 | 3.41 | -1.35 | nil |
| 2012 | 103 | 6.52 | 4.82 | nil |
| % change | +25 | +91 | - | - |
Ex-div:- Payment:- *Includes intangible assets of $25.6m, or 49¢ a share | ||||
