Intrinsic value of Hutchison China MediTech Limited - HCM

Previous Close

$26.30

  Intrinsic Value

$0.70

stock screener

  Rating & Target

str. sell

-97%

Previous close

$26.30

 
Intrinsic value

$0.70

 
Up/down potential

-97%

 
Rating

str. sell

We calculate the intrinsic value of HCM stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  218
  223
  229
  235
  243
  250
  259
  268
  278
  289
  300
  312
  325
  339
  354
  369
  386
  403
  421
  441
  461
  483
  506
  529
  555
  581
  609
  639
  669
  702
Variable operating expenses, $m
  266
  272
  279
  287
  296
  305
  316
  327
  339
  352
  364
  379
  394
  411
  429
  448
  467
  488
  511
  534
  559
  585
  612
  641
  672
  704
  738
  774
  811
  851
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  266
  272
  279
  287
  296
  305
  316
  327
  339
  352
  364
  379
  394
  411
  429
  448
  467
  488
  511
  534
  559
  585
  612
  641
  672
  704
  738
  774
  811
  851
Operating income, $m
  -48
  -49
  -50
  -52
  -53
  -55
  -57
  -59
  -61
  -63
  -64
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -98
  -102
  -107
  -112
  -117
  -123
  -129
  -135
  -142
  -149
EBITDA, $m
  -42
  -43
  -45
  -46
  -47
  -49
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -86
  -90
  -94
  -98
  -103
  -108
  -113
  -118
  -124
  -130
  -136
Interest expense (income), $m
  0
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
Earnings before tax, $m
  -49
  -51
  -52
  -54
  -55
  -57
  -59
  -62
  -64
  -67
  -68
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -97
  -102
  -107
  -113
  -118
  -124
  -130
  -137
  -144
  -151
  -158
  -166
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -49
  -51
  -52
  -54
  -55
  -57
  -59
  -62
  -64
  -67
  -68
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -97
  -102
  -107
  -113
  -118
  -124
  -130
  -137
  -144
  -151
  -158
  -166

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  323
  330
  339
  348
  359
  370
  383
  397
  411
  427
  444
  462
  481
  502
  523
  546
  571
  596
  623
  652
  682
  714
  748
  783
  821
  860
  901
  945
  990
  1,038
Adjusted assets (=assets-cash), $m
  323
  330
  339
  348
  359
  370
  383
  397
  411
  427
  444
  462
  481
  502
  523
  546
  571
  596
  623
  652
  682
  714
  748
  783
  821
  860
  901
  945
  990
  1,038
Revenue / Adjusted assets
  0.675
  0.676
  0.676
  0.675
  0.677
  0.676
  0.676
  0.675
  0.676
  0.677
  0.676
  0.675
  0.676
  0.675
  0.677
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
Average production assets, $m
  19
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  43
  46
  48
  50
  52
  55
  58
  60
Working capital, $m
  -16
  -17
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
Total debt, $m
  30
  33
  37
  41
  46
  51
  57
  63
  70
  77
  84
  93
  101
  110
  120
  131
  142
  153
  165
  178
  192
  206
  222
  238
  254
  272
  291
  311
  331
  353
Total liabilities, $m
  146
  149
  153
  157
  162
  167
  173
  179
  186
  193
  201
  209
  218
  227
  237
  247
  258
  270
  282
  295
  308
  323
  338
  354
  371
  389
  407
  427
  448
  469
Total equity, $m
  177
  181
  186
  191
  197
  203
  210
  217
  225
  234
  243
  253
  264
  275
  287
  299
  313
  327
  342
  357
  374
  391
  410
  429
  450
  471
  494
  518
  543
  569
Total liabilities and equity, $m
  323
  330
  339
  348
  359
  370
  383
  396
  411
  427
  444
  462
  482
  502
  524
  546
  571
  597
  624
  652
  682
  714
  748
  783
  821
  860
  901
  945
  991
  1,038
Debt-to-equity ratio
  0.170
  0.180
  0.200
  0.220
  0.230
  0.250
  0.270
  0.290
  0.310
  0.330
  0.350
  0.370
  0.380
  0.400
  0.420
  0.440
  0.450
  0.470
  0.480
  0.500
  0.510
  0.530
  0.540
  0.550
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
Adjusted equity ratio
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -49
  -51
  -52
  -54
  -55
  -57
  -59
  -62
  -64
  -67
  -68
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -97
  -102
  -107
  -113
  -118
  -124
  -130
  -137
  -144
  -151
  -158
  -166
Depreciation, amort., depletion, $m
  6
  6
  6
  6
  6
  6
  6
  6
  7
  7
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  12
  12
Funds from operations, $m
  -44
  -45
  -46
  -48
  -49
  -51
  -53
  -55
  -57
  -60
  -63
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -115
  -121
  -127
  -133
  -140
  -147
  -154
Change in working capital, $m
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  -44
  -45
  -46
  -47
  -49
  -51
  -52
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -119
  -125
  -131
  -138
  -145
  -152
Maintenance CAPEX, $m
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -12
New CAPEX, $m
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
Cash from investing activities, $m
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
Free cash flow, $m
  -48
  -49
  -50
  -52
  -54
  -55
  -58
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -97
  -102
  -107
  -112
  -118
  -124
  -130
  -137
  -143
  -151
  -158
  -166
Issuance/(repayment) of debt, $m
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
Issuance/(repurchase) of shares, $m
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  77
  81
  84
  88
  93
  97
  102
  107
  112
  118
  124
  130
  137
  143
  151
  158
  166
  175
  183
  193
Cash from financing (excl. dividends), $m  
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  85
  89
  93
  97
  103
  107
  113
  119
  124
  131
  138
  144
  152
  159
  168
  176
  185
  195
  204
  215
Total cash flow (excl. dividends), $m
  9
  9
  10
  11
  12
  13
  14
  16
  17
  18
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  37
  39
  41
  44
  46
  48
Retained Cash Flow (-), $m
  -53
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -77
  -81
  -84
  -88
  -93
  -97
  -102
  -107
  -112
  -118
  -124
  -130
  -137
  -143
  -151
  -158
  -166
  -175
  -183
  -193
Prev. year cash balance distribution, $m
  215
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  171
  -45
  -46
  -47
  -49
  -50
  -52
  -54
  -56
  -58
  -60
  -62
  -65
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -119
  -125
  -131
  -138
  -145
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  164
  -42
  -40
  -39
  -38
  -36
  -35
  -33
  -32
  -30
  -28
  -27
  -25
  -23
  -21
  -19
  -17
  -15
  -13
  -11
  -10
  -8
  -7
  -5
  -4
  -3
  -3
  -2
  -2
  -1
Current shareholders' claim on cash, %
  96.7
  93.5
  90.4
  87.3
  84.3
  81.4
  78.5
  75.8
  73.1
  70.5
  68.0
  65.6
  63.2
  61.0
  58.8
  56.6
  54.6
  52.6
  50.6
  48.8
  47.0
  45.2
  43.5
  41.9
  40.3
  38.8
  37.4
  36.0
  34.6
  33.3

Hutchison China MediTech Limited (Chi-Med) is a China-based, globally-focused healthcare group. The Company researches, develops, manufactures and sells pharmaceuticals and health-related consumer products. Its Innovation Platform focuses on discovering and developing therapeutics in oncology and autoimmune diseases for the global market. Its Commercial Platform manufactures markets and distributes prescription drugs and consumer health products in China.

FINANCIAL RATIOS  of  Hutchison China MediTech Limited (HCM)

Valuation Ratios
P/E Ratio 0
Price to Sales 0
Price to Book 0
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -100%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 0%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 0%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 0%
Asset Turnover 0
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 0%
EBITDA Margin - 3 Yr. Avg. 0%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. 0%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 0%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

HCM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HCM stock intrinsic value calculation we used $214 million for the last fiscal year's total revenue generated by Hutchison China MediTech Limited. The default revenue input number comes from 0001 income statement of Hutchison China MediTech Limited. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HCM stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HCM is calculated based on our internal credit rating of Hutchison China MediTech Limited, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Hutchison China MediTech Limited.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HCM stock the variable cost ratio is equal to 122%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for HCM stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Hutchison China MediTech Limited.

Corporate tax rate of 27% is the nominal tax rate for Hutchison China MediTech Limited. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HCM stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HCM are equal to 8.6%.

Life of production assets of 0 years is the average useful life of capital assets used in Hutchison China MediTech Limited operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HCM is equal to -7.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $388.996 million for Hutchison China MediTech Limited - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 133.238 million for Hutchison China MediTech Limited is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Hutchison China MediTech Limited at the current share price and the inputted number of shares is $3.5 billion.

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