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12 Sep | Hutchison China Meditech

Based on an update from our preferred small cap tip sheet, Small Company Share Watch, we passed an eye over an old Investor Trader favourite, Hutchison China Meditech. We liked what we saw.

Huthcison is an interesting proposition on many levels. Its focus is on researching, developing, manufacturing and supplying health-oriented consumer products – primarily to the Chinese markets – which it achieves through three divisions: a healthcare division, a research and development division and a consumer products division.

It’s this mix of underlying profitability from a flourishing healthcare division (the latest interims (pdf) showed revenues up 25% and a 97% growth in operating profit – due in no small part to China’s health-care reforms and a burgeoning middle-class) and an R&D division that has the potential to deliver massive growth on the sniff of a research breakthrough, that I like. And with net cash at 30th June 2012 of US$25.6M and un-utilised loan facilities of US$87.5M they’re liquidity is solid.

On the R&D front take a peek at the latest Phase III happenings for HMPL-004 – the techy lab name for their Inflammatory Bowel Diseases product – for which, and I quote, “third party market research indicates that HMPL-004 may reach peak sales in excess of US$1 billion.”

Then there’s the Chinese element which has always sent my investment pheromones into hyperdrive.

We’ve been in and out of Hutchison China Meditech back in 2010/2011 for a handy 52% profit. Here’s the reasoning behind our original purchase in July 2010.

We liked them then and we like them now. So now it’s back to the old, “what to sell to buy” dilemma. Ho hum!

I’ll leave you with this little nugget from Christian Hogg, CEO of Hutchison China Meditech from July’s interim results:

We are one of the leading innovators in the China pharmaceutical industry, having invested almost $130 million in drug research and development in the field of oncology and immunology over the past eleven years. We believe the fruits of this investment are set to emerge over the coming few years, and are set to transform the Group.

Thanks again for dropping by.