Hutchison China MediTech (LON:HCM) “is a holding company of a healthcare group based primarily in China. The Company is engaged in research, development, manufacturing and sales of pharmaceuticals, health supplements and other consumer health and personal care products.”

Now, I know what you’re thinking, have I gone mad buying into a Chinese stock? Maybe, yes, it is only a small holding, so I’m willing to take some chance.

There are a number of “features” about that I think make the risks acceptable:

  • Yesterday, an RNS announced: “Ms Edith Shih, Non-executive Director and Company Secretary of Chi-Med, purchased 20,000 ordinary shares of US$1.00 each in Chi-Med (the “Shares”) at a price of GBP6.20 each on 15 October 2013.
  • Revenue growth has been impressive: £29m in 2006, and £128m for 2012, with forecast revenues of £149m. IMPORTANTLY, this growth has been achieved with little increase in the shares in issue. It’s true that the number of shares in issue at 2007/03 did jump from 41.1m to 51.2m in 2008/03, but they have remained largely unchanged since then.
  • It lists Slater Investments as a major shareholder – which to my mind provides some comfort as to its quality. Fidelity is also a major shareholder.
  • It’s actually cash-generative. Gearing is low, and interest cover is high
  • Valuation levels look sane. On an EV/Sales basis, HCM is only slightly more expensive than AZN (Astrazeneca), and actually cheaper than GSK (Glaxo). On a PBV basis, HCM falls between the two, too. 
  • In their interims dated 30 Jul, they reported: “There has been much comment on whether economic growth in China is slowing, but it is quite clear this is not the case in the pharmaceutical sector, where the progressive widening and deepening of the State’s National Healthcare Plan and the growth in personal incomes continue to drive strong growth. … Our Drug R&D Division continues to make very impressive strides in its drug development programme and in partnership agreements with leading multinational pharmaceutical companies, all of which are adding substantial shareholder value and are set for continued major growth. … We look for further continued strong progress and for potential additional steps in partnership agreements.”

For me, it was worth a small punt as a growth stock.


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