Hutchmed (China) Limited (LON: HCM)

Hutchmed (China) Limited (LON: HCM) is an FTSE AIM 100 index listed Company engaged in the manufacturing and sale of drugs. Moreover, the Company is focused on the development and commercialization of targeted therapies and immunotherapies for the treatment of cancer and immunological diseases.

Development Pipeline

• SAMETA Global P3 Trial: On 01 November 2021, HCM and AstraZeneca had initiated SAMETA Global Phase III Trial of Savolitinib in Combination with PD-L1 Inhibitor IMFINZI® in Patients with MET-Driven Advanced Papillary Renal Cell Carcinoma.
• HMPL-523: On 28 October 2021, HCM had initiated a Phase III Trial of HMPL-523 in Patients with Immune Thrombocytopenia in China.
• SURTORI-01: On 21 September 2021, HCM had started a Phase III Trial of SULANDA® in Combination with TUOYI® in the Treatment of Advanced Neuroendocrine Carcinoma in China.

Growth Prospects

• Breakthrough Therapy: The Centre for Drug Evaluation of China's National Medical Products Administration ("NMPA") had granted Breakthrough Therapy Designation ("BTD") to amdizalisib (HMPL-689) for the Treatment of Relapsed or Refractory Follicular Lymphoma.
• New Manufacturing Facility: HCM broke ground on a USD 130 million new Shanghai production facility in December 2020, which will enable a five-fold increase in small molecule medicinal product manufacturing capacity over its current Suzhou facilities.
• Launch of ELUNATE® and SULANDA®: HCM had over 500 people oncology commercial team to drive the sales of ELUNATE® and SULANDA®.

Key Risks

• Increase in Net Loss: The net loss had shown a significant increase during H1 FY21 when compared with the H1 FY20 levels.
• Compliance Risk: The Company operates in a highly regulated market, and any non-compliance with rules and laws could lead to penalties and loss of reputation.
• Potential delay in drug launches: Any delay in rolling out treatments could lead to a loss in revenue and market share to competitors.
• Financial Risk: The Company requires funding for product development programs and commercialization efforts, and any delay or failure to attain the funds could lead to delay in operations and plans.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Hutchmed (China) Limited.

Hutchison Healthcare Holdings Ltd. is the most significant shareholder as it holds nearly 332.50 million shares as of 30 September 2021.    

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 28 July 2021)

(Source: Company Results)

• Robust Revenue Growth: The Company posted robust revenue growth of around 47% in H1 FY21, where revenues for the period ended 30 June 2021, was USD 157.4 million compared to USD 106.8 million in H1 FY20. 
• Remarkable Growth in Oncology/Immunology Division: The Oncology/Immunology division’s consolidated revenues had shown a robust increase of around 161% to USD 42.9 million during H1 FY21, while it was USD 16.4 million for H1 FY20.
• Widening of Net Loss: The net loss had widened from negative USD 49.7 million for H1 FY20 to negative USD 102.4 million for H1 FY21.
• Increase in Net Cash Balance: HCM had increased the cash balance to USD 950.4 million as of 30 June 2021, up from USD 435.2 million as of December 31, 2020.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv; Analysis done by Kalkine Group)

On 03 November 2021, HCM’s shares were closed at GBX 452.00. Stock 52-week High and Low were GBX 656.00 and GBX 337.00, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price.

Over the last two years, HCM’s stock price has delivered a positive return of ~42.48%, and it has outperformed the FTSE AIM 100 index (benchmark index) with a return of about 33.00% and FTSE All-Share Pharmaceuticals & Biotechnology (benchmark sector) with a return of around 16.75%.

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Business Outlook

The Company had achieved strong revenue growth of around 47% during H1 FY21. Meanwhile, HCM has a significant development pipeline as it made several regulatory achievements during the period. The management had posted strong revenue guidance for 2021 with Oncology/Immunology consolidated revenues to increase to USD 110 - 130 million in 2021 from USD 30.2 million in 2020. However, the stock price may undergo adverse corrections because of the rising treasury yields and increasing inflation rates. Thus, it would depend on the risk appetite of the investors to take a reasonable position on this company having a strong development pipeline and bright prospects.

Considering the healthy clinical pipeline, strong revenue guidance, robust cash generation, strong liquidity profile, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Hutchmed (China) Limited at the closing price of GBX 452.00 (as of 03 November 2021), with lower-double digit upside potential based on 14.29x EV/NTM Sales (approx.) on FY22E sales (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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