Intrinsic value of Hutchison China MediTech ADR - HCM

Previous Close

$36.60

  Intrinsic Value

$0.91

stock screener

  Rating & Target

str. sell

-98%

Previous close

$36.60

 
Intrinsic value

$0.91

 
Up/down potential

-98%

 
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 4.9

 

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, %
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
Revenue, $m
  269
  299
  330
  362
  396
  431
  467
  506
  545
  586
  629
  674
  720
  768
  818
  870
  924
  981
  1,039
  1,101
  1,165
  1,231
  1,301
  1,373
  1,449
  1,529
  1,612
  1,698
  1,789
  1,884
Variable operating expenses, $m
  327
  363
  401
  440
  481
  524
  568
  614
  663
  713
  764
  818
  874
  933
  994
  1,057
  1,122
  1,191
  1,262
  1,337
  1,414
  1,495
  1,580
  1,668
  1,760
  1,856
  1,957
  2,062
  2,173
  2,288
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
  327
  363
  401
  440
  481
  524
  568
  614
  663
  713
  764
  818
  874
  933
  994
  1,057
  1,122
  1,191
  1,262
  1,337
  1,414
  1,495
  1,580
  1,668
  1,760
  1,856
  1,957
  2,062
  2,173
  2,288
Operating income, $m
  -58
  -64
  -71
  -78
  -85
  -93
  -101
  -109
  -117
  -126
  -135
  -144
  -154
  -165
  -175
  -187
  -198
  -210
  -223
  -236
  -250
  -264
  -279
  -295
  -311
  -328
  -346
  -364
  -384
  -404
EBITDA, $m
  -54
  -60
  -67
  -73
  -80
  -87
  -94
  -102
  -110
  -118
  -127
  -136
  -145
  -155
  -165
  -176
  -187
  -198
  -210
  -222
  -235
  -249
  -263
  -277
  -293
  -309
  -325
  -343
  -361
  -380
Interest expense (income), $m
  0
  2
  2
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  26
  27
  29
  30
Earnings before tax, $m
  -60
  -67
  -74
  -81
  -89
  -97
  -106
  -115
  -124
  -133
  -143
  -153
  -164
  -175
  -187
  -199
  -212
  -225
  -238
  -252
  -267
  -283
  -299
  -316
  -333
  -352
  -371
  -391
  -412
  -434
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
  -60
  -67
  -74
  -81
  -89
  -97
  -106
  -115
  -124
  -133
  -143
  -153
  -164
  -175
  -187
  -199
  -212
  -225
  -238
  -252
  -267
  -283
  -299
  -316
  -333
  -352
  -371
  -391
  -412
  -434

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
  351
  389
  430
  472
  516
  562
  609
  659
  711
  765
  820
  878
  939
  1,001
  1,067
  1,134
  1,205
  1,279
  1,355
  1,435
  1,518
  1,605
  1,696
  1,791
  1,889
  1,993
  2,101
  2,214
  2,333
  2,456
Adjusted assets (=assets-cash), $m
  351
  389
  430
  472
  516
  562
  609
  659
  711
  765
  820
  878
  939
  1,001
  1,067
  1,134
  1,205
  1,279
  1,355
  1,435
  1,518
  1,605
  1,696
  1,791
  1,889
  1,993
  2,101
  2,214
  2,333
  2,456
Revenue / Adjusted assets
  0.766
  0.769
  0.767
  0.767
  0.767
  0.767
  0.767
  0.768
  0.767
  0.766
  0.767
  0.768
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
  0.767
Average production assets, $m
  17
  19
  21
  23
  25
  27
  29
  32
  34
  37
  40
  42
  45
  48
  52
  55
  58
  62
  65
  69
  73
  78
  82
  87
  91
  96
  102
  107
  113
  119
Working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
Total debt, $m
  40
  50
  60
  72
  83
  95
  108
  121
  135
  149
  164
  179
  195
  211
  229
  247
  265
  285
  305
  326
  348
  371
  395
  420
  446
  473
  502
  532
  563
  595
Total liabilities, $m
  93
  103
  113
  125
  136
  148
  161
  174
  188
  202
  217
  232
  248
  264
  282
  299
  318
  338
  358
  379
  401
  424
  448
  473
  499
  526
  555
  585
  616
  648
Total equity, $m
  258
  287
  316
  347
  380
  413
  449
  485
  523
  563
  604
  647
  691
  737
  785
  835
  887
  941
  997
  1,056
  1,117
  1,181
  1,248
  1,318
  1,391
  1,467
  1,546
  1,630
  1,717
  1,808
Total liabilities and equity, $m
  351
  390
  429
  472
  516
  561
  610
  659
  711
  765
  821
  879
  939
  1,001
  1,067
  1,134
  1,205
  1,279
  1,355
  1,435
  1,518
  1,605
  1,696
  1,791
  1,890
  1,993
  2,101
  2,215
  2,333
  2,456
Debt-to-equity ratio
  0.150
  0.170
  0.190
  0.210
  0.220
  0.230
  0.240
  0.250
  0.260
  0.260
  0.270
  0.280
  0.280
  0.290
  0.290
  0.300
  0.300
  0.300
  0.310
  0.310
  0.310
  0.310
  0.320
  0.320
  0.320
  0.320
  0.320
  0.330
  0.330
  0.330
Adjusted equity ratio
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -60
  -67
  -74
  -81
  -89
  -97
  -106
  -115
  -124
  -133
  -143
  -153
  -164
  -175
  -187
  -199
  -212
  -225
  -238
  -252
  -267
  -283
  -299
  -316
  -333
  -352
  -371
  -391
  -412
  -434
Depreciation, amort., depletion, $m
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  23
  24
Funds from operations, $m
  -56
  -62
  -69
  -76
  -84
  -91
  -100
  -108
  -117
  -126
  -135
  -145
  -155
  -166
  -177
  -188
  -200
  -212
  -225
  -239
  -253
  -267
  -283
  -299
  -315
  -333
  -351
  -370
  -390
  -411
Change in working capital, $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 from operations, $m
  -56
  -62
  -69
  -76
  -84
  -91
  -99
  -108
  -116
  -126
  -135
  -145
  -155
  -165
  -176
  -188
  -200
  -212
  -225
  -238
  -252
  -267
  -282
  -298
  -315
  -332
  -351
  -370
  -390
  -410
Maintenance CAPEX, $m
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -23
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
Cash from investing activities, $m
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -29
Free cash flow, $m
  -61
  -68
  -75
  -82
  -90
  -99
  -107
  -116
  -125
  -135
  -145
  -155
  -166
  -178
  -189
  -201
  -214
  -227
  -241
  -255
  -270
  -286
  -302
  -319
  -337
  -356
  -375
  -395
  -417
  -439
Issuance/(repayment) of debt, $m
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
Issuance/(repurchase) of shares, $m
  87
  95
  103
  112
  121
  131
  141
  151
  162
  173
  184
  196
  208
  221
  235
  249
  263
  279
  295
  311
  329
  347
  366
  386
  406
  428
  451
  475
  499
  526
Cash from financing (excl. dividends), $m  
  97
  105
  114
  123
  133
  143
  154
  164
  176
  187
  199
  211
  224
  238
  252
  267
  282
  298
  315
  332
  351
  370
  390
  411
  432
  455
  480
  505
  530
  559
Total cash flow (excl. dividends), $m
  35
  37
  39
  41
  43
  45
  46
  48
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
Retained Cash Flow (-), $m
  -87
  -95
  -103
  -112
  -121
  -131
  -141
  -151
  -162
  -173
  -184
  -196
  -208
  -221
  -235
  -249
  -263
  -279
  -295
  -311
  -329
  -347
  -366
  -386
  -406
  -428
  -451
  -475
  -499
  -526
Prev. year cash balance distribution, $m
  254
  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
  203
  -57
  -64
  -71
  -79
  -86
  -95
  -103
  -112
  -121
  -130
  -140
  -150
  -161
  -172
  -184
  -195
  -208
  -221
  -234
  -248
  -263
  -278
  -294
  -311
  -328
  -347
  -366
  -385
  -406
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
  194
  -53
  -56
  -59
  -61
  -63
  -64
  -64
  -64
  -63
  -62
  -60
  -57
  -54
  -51
  -47
  -43
  -38
  -34
  -30
  -26
  -22
  -18
  -15
  -12
  -10
  -7
  -6
  -4
  -3
Current shareholders' claim on cash, %
  96.4
  93.0
  89.7
  86.7
  83.7
  80.9
  78.3
  75.7
  73.3
  70.9
  68.7
  66.5
  64.4
  62.4
  60.5
  58.7
  56.9
  55.1
  53.5
  51.8
  50.3
  48.8
  47.3
  45.9
  44.5
  43.2
  41.9
  40.6
  39.4
  38.3

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 ADR (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 $241.203 million for the last fiscal year's total revenue generated by Hutchison China MediTech ADR. The default revenue input number comes from 0001 income statement of Hutchison China MediTech ADR. 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 11.6% 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 ADR, 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 ADR.
    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 121.6%.

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 ADR.

Corporate tax rate of 27% is the nominal tax rate for Hutchison China MediTech ADR. 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 6.3%.

Life of production assets of 0 years is the average useful life of capital assets used in Hutchison China MediTech ADR 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 -0.3%. 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 - $484.966 million for Hutchison China MediTech ADR - 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 132.894 million for Hutchison China MediTech ADR 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 ADR at the current share price and the inputted number of shares is $4.9 billion.

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COMPANY NEWS

▶ Chi-Med to Announce 2018 Half-Year Financial Results   [Jun-29-18 02:00AM  GlobeNewswire]
▶ Financially Sounds Stocks Poised For High Growth   [Feb-14-18 06:02AM  Simply Wall St.]
▶ Chi-Med Initiates Fruquintinib U.S. Clinical Trials   [Dec-15-17 02:00AM  Business Wire]
▶ Chi-Med Announces Proposed Offering of ADSs   [Oct-24-17 04:31PM  Business Wire]
▶ Edison Issues Update on Hutchison China MediTech (HCM)   [Oct-18-17 11:56AM  ACCESSWIRE]
▶ Hutchison China MediTech: Appointment of Director   [Oct-12-17 02:52AM  Business Wire]

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