Hutchison China MediTech

Timing is right for a Hong Kong debut

Update | 30 May 2019

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Approval of EGM resolutions paves the way for the IPO of Hutchison China MediTech (Chi-Med) on the Hong Kong Stock Exchange (SEHK) in the coming months. This IPO should enhance Chi-Med’s access to capital, broaden its shareholder base, further raise its profile in its home market, and, importantly, improve liquidity. Liquidity will be further boosted by an associated global offering (size and structure are not yet disclosed), the secondary placement of shares by majority shareholder CK Hutchison Holdings Ltd, and a share split effective May 30th. Each ordinary AIM share is being divided into 10 new shares; an adjustment to the ADS ratio ensures there is no effect on the NASDAQ trading price. Accounting for this share split, our valuation remains $35.57/ADS ($4.74bn) but is now £5.47/share (£3.65bn) vs £54.72/share previously.

Year-end: December 31201720182019E2020E
Sales (US$m)241.2214.1168.6207.6
Adj. PBT (US$m)(53.5)(86.7)(205.6)(202.0)
Net Income (US$m)(23.0)(71.3)(170.6)(164.4)
Earnings per ADS (US$)(0.22)(0.57)(1.31)(1.26)
Cash (US$m)358.3301.0285.9*233.8
Adj. EBITDA (US$m)(17.2)(69.7)(163.9)(159.5)
Source: Trinity Delta Note: Adjusted PBT excludes exceptionals, Cash includes short-term investments, Adjusted EBITDA includes equity in earnings of equity investees. *2019E cash figure includes assumed raise of $250m.
  • New capital to support pipeline investment Chi-Med’s Global Innovation and China Oncology pipelines are maturing, with eight programmes under evaluation in over 30 clinical trials. The company is raising funds to support investment into advancing its pipeline but has so far given no indication of the potential size and structure of the proposed primary capital offering. Based on expected cash burn over the next two years, and guidance for FY19 R&D spend of $160-200m, we estimate Chi-Med would look to raise $200-250m.
  • Majority holder deconsolidating, but still committed Reducing CK Hutchison’s holding from 60.2% to <50%, via dilution and a secondary placement, will give Chi-Med more flexibility to pursue its own strategic goals and maximise its potential. The secondary placing of, we calculate c$250m, will also improve its liquidity and means it will no longer be consolidated in CK Hutchison’s financial accounts.
  • Various approaches to boost liquidity In addition to the proposed IPO, global offering, and secondary share sale by CK Hutchison, Chi-Med shareholders have approved a share split. Effective May 30th, each AIM share is subject to a one-for-ten share split; with the ADS ratio adjusted to 1 ADS = 5 shares (from 1 ADS = 0.5 share) to ensure the ADS value is unaffected. This should make Chi-Med shares more accessible to the spectrum of investors and reduce the bid/offer spread.
  • Updated £5.47/share valuation; per ADS remains $35.57/ADS Our Chi-Med valuation employs a DCF-based SOTP approach that includes a detailed rNPV of the clinical pipeline. Our current pre-money valuation is $4.74bn ($35.57/ADS) or £3.65bn (with the share split this is now equivalent to £5.47/share). We anticipate clinical, regulatory, and commercial catalysts that will unlock further value.

Update

30 May 2019

Price (US ADS)
(UK share)
$28.46
4.52p
Market Cap
 
$3.79bn
£3.01bn
Enterprise Value
 
$3.49bn
£2.78bn
Shares in issue (ADS)
(shares)
133.3m
666.6m
12-month range
 
$20.83-$39.68
318p-567p
Free float32%
Exchanges
 
NASDAQ
AIM
SectorHealthcare
Company Code
 
HCM
HCM.L
Corporate clientYes

Company description

Hutchison China MediTech is a Hong Kong headquartered biopharma with an established Commercial Platform in China, and a diverse pipeline of first-in-class/best-in-class selective oral tyrosine kinase inhibitors (Innovation Platform). Its pipeline, discovered in-house, is in development for the China and global oncology markets.

Analysts

Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041

Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Exhibit 1: Summary of financials
Source: Company, Trinity Delta  Note: Adjusted numbers exclude exceptionals. * Forecast EPS for 2019 and 2020 adjusted for one-to-ten ordinary share split, with new ADS ratio of 1:5 shares. Our estimate of $250m proceeds from the proposed equity raise are shown as short-term debt in FY19e, until transaction size, structure, and terms are confirmed.

 

 

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