Member Info for Jatw

The dividend has been rebased to reflect Asia and African units only.

Jackson did not remit to centre this past year....must have needed substantial capital injection.

Interim dividend is a technical matter in Solvency II.
For all practical matters it is the final dividend for the year just ended

The first FY results set a low benchmark for 2021 and 2022.
Good capital generation suggests the dividend is looking safer by the day...they even offered slightly more than the 12p expected.
The path is set for the price to rise for the yield to fall back to 6-7% in line with others.

I would love them to be able to avoid an equity raise, but I suspect that is not feasible.
I expect there is quite a lot of margin trading on Nasdaq and he recent falls in stocks such as Tesla must be affecting quite a few investors who may need to sell anything to meet margin calls which may be why we are seeing such high volatility at he moment.

Interested in views on how much cash Hutchmed is going to need and how to raise it. CH indicated significant uplift in pipeline spending in 2021.....it is unlikely to fall much thereafter as they seek to find new candidates and new indications for existing drugs. They probably need to fund 1bn over say 3 years from operating cash flow, additional debt and new equity and then 300m pa.

They could sell their JVs and OTC business.
Borrow against the factory and the OTC business, possibly borrow against future revenues if this is now a viable option.
Collaborate on surufatinib for a large upfront payment.
Continue to raise equity in $100m blocks (3 in 2020)
Go for a bigger equity raise as I suggested
Merge with a company with cash reserves, possibly use this as cover to raise a large amount of equity
Sell out (someone else’s problem)

Cash positive inflow at this level is certainly unlikely in 22/23/24. THe analysts need to push for and the company needs to disclose how they intend to operate over the next 5 years.
Their self sufficient approach to manufacturing and distribution only increases their need for cash to build the business.

All options come with downsides in the form of lost future income or increased costs or shareholder dilution, but these can be mitigated by increasing the value of the pipeline.

Results are on Tuesday 9 March.
The dividend and the ex dividend date should be part of the announcement, expect atleast a couple of weeks notice on the ex-div date, but probably in March.

When the market only drops 3% on a massive profit warning, you have to think this is at the bottom and can only go up from here.

Add fee pressure and cost inflation to lower assets under management and it is tough for pure asset managers......
Asset Management has historically been one of the easier finance businesses to set up...we have way too many funds and asset managers at present, hence there will continue to be consolidation to gain economies of scale.

AMgrs are looking to enter wealth management where fees are higher and risks lower.

Purely a bit of fun at this stage, if you were on the Board of Hutchmed how much would you seek to raise in a new offer (in HK or SH) what assumptions/conditions would apply?

My guess is USD 400m

Assumptions
1 raise is towards the end of 2021 market has been stable, COVID-19 appears to be over and health provision is returning to normal
2 GA made its second tranche investment so raise at the bottom end
3 CKHH is not offering shares

Karv
I think the balance of risk / reward is on the upside.
Assets under management will have been rescued by the market recovery, the IFDL (ascentric) acquisition brings a further 14bn.
Probably an improved insurance result and a steady asset management out turn.
I suspect the dividend will be as expected, at worst flat on 2019.

Progress on the capital plan will be important it is his that supports the dividend while the business is reshaped. ,remember there is 100m tied up in the annuity reinsurance deal, this goes to court later in 2021 and is probably just delayed rather than not achieved.

The change to corporation tax rates could be a nasty surprise, but it may not be reflected in this years deferred tax number.

malvolio
The SOlvency II regime did no favours for some UK lines of business requiring a lot of extra capital to make them exceptionally safe....anything with a guaranteed benefit was negatively impacted.

I doubt the Bank of England will change many areas of SII (there is no regulatory benefits and historically regulations only get tighter) so any benefit to individual companies is highly speculative until there are firm proposals. One area where change is more likely is the capital required to back long term infrastructure assets (protecting them from risk of downgrades and lower future returns) This is an area the govt wants to encourage, so a more favourable treatment may be permitted over time insurers may be able to rotate investments into this area and release some capital..
I would not change my investments on such speculation.

A large movement can be expected with the results......trouble is it could go either way....but I suspect the general environment means the odds favour the upside.
However if capital generation has not met expectations then there could be a sharp drop.
I am not expecting a dividend....better to keep any distributable capital a little longer to make the recovery safe.

The Results presentation is an evolution of what has gone before, including a tease on the new product, although atleast we can now see some revenue coming in after 20 years of drug development. They were right to shout about the improvement in Elunate sales under HCM this bodes well for sulanda in China. They wanted to get a patient access programme for sulanda in the US to get sales going before approval, this did not appear to feature but is something to look for in the HY presentation. Making strong sales of sulanda outside China could well be the making of hutchmed in 2022.

I am not sure we read anything into market reaction just yet.....the Nasdaq fall yesterday was in the context of quite a sharp general sell off and has been largely reversed for HCM today - the analysts were falling over themselves to praise the pipeline progress so maybe their overall mood will become more positive. The average SP forecast is now 39.6 USD and has increased since I last commented on it.

The market will be looking at spending commitments and looking at how they will be funded which is probably the main factor holding back the share price....the new factory worth 6m pipeline development can be built using mortgage finance but the 450m is not going to last more than 12-18m before more funding is needed to keep them in the well funded zone. That should be the cue for an Asian listing....they must see they way the HK bio market has gone that they were wrong to shelve the idea last time.

The cardiff study is Getting less relevant by the day and is unlikely to move the dial for VLG when it is published.
Whereas the acquisitions are important and getting paid by China agent.

For a complex firm using its own solvency model, then 160-180% would be a normal operating level.
Above 180 the dividends are pretty safe and there s the possibility of investing more in the business or a return to shareholders.
It can be lower for simpler business. Eg St James place is nearly all investment based which means little risk is being taken by he company and it operates around 110%.
MNGs liabilities are mostly longevity related in its 40bn annuity book. (30bn after reinsurance).
Interest rates at the ye will not be helping as they were close to all time lows.....the recent rise in yields of govt debt will be helping, but will not show through until HY.

Slightly surprised by the rebranding putting hutch in the title given CKHH is no longer the majority shareholder but it is a good idea to remove China from the title.

It is PwCs first year as auditor, KPMG signed off last year.
Many businesses have had accounts delayed under COVID-19 protocols.
They are less than a week late and the CFO is still in place.......I would be worried if he had been thrown out.....sounds routine and no need to panic....but they would say that..

The rot seemed to set in at the end of the budget today and ahead of US opening.
I can only think the hike in corporation tax is to blame for today. However the results were generally good and better than expected. I would not be surprised to see some upgrades coming in the next few weeks, particularly as their european peers report and the 12-15% growth in Asia is compared to 0-5% across Europe.
It is remarkable that Jackson appears to be valued at less than 3x earnings, although the accounting is v different as it realises profit almost immediately.

A $3bn raise should not require much of a discount to get it away. The gamblers amongst you may want to sell now and buy back in the raise x-div and x-Jackson. That could be expensive if the market decides the sum of the parts is worth more than the whole as it did with MNG.
I will decide nearer the time once the gap between separation and the raise is known.

Sorry about the acronyms. I will try not to use them.....but some typos (or predictive text errors) are inevitable.
I predict 2022 will be a bumper year ahead of the new corporation tax rate.....and 2023 will be poor by comparison.

A 130% capital allowance would appear to be good news for sms for the next 2 years.....the sting in the tail is a CT hike to 25%(too high). Get those expensive CARE assets purchased ASAP.