Hutchison China MediTech

Hutchison China Meditech (Chi-Med) has reported an 86% surge in first half sales to £17m following setbacks last month.

Shares in the AIM-listed group, which floated in May, fell 13% in June and July following two regulatory changes affecting its Shanghai business. But analysts say that the drop should be temporary and should only affect short-term revenue growth.

Chi-Med was spun-out of billionaire Li Ka-Shing's Hutchison Whampoa, which owns a 72% stake, in 2000 and is split into three core businesses: a drug discovery and development arm, the china healthcare business and the London-based retail business boasting five shops – one in Harrods.

The healthcare arm operates in a fragmented and fast-growing sector, with its links to Hutchison Whampoa leaving it well-positioned to take advantage. Analysts at house-broker Panmure Gordon expect acquisitions and collaborations to emerge shortly.

The discovery arm develops drugs based on traditional Chinese medicine (TCM) and benefits from low research costs in China. Overheads for the FDA approval process are around $500,000 per month, which is ‘five to ten times lower than that of the UK’, assures chief executive Christian Hogg.

Using TCM means that compounds enjoy a record of prior use, yielding positive clinical data and speeding up the process considerably. This is the case for two current projects HMPL-002, a radiotherapy enhancer for cancer and HMPL-004, for inflammatory bowel disease.

Nevertheless, pre-tax losses for the six months to the end of June widened to £1.64m (£1.48m), due to increased investment in the drug research and development division and are expected to continue to do so.

Forecast figures suggest that profits will not emerge for the group until after 2008, but like-for-like sales are expected to double for the full year. Panmure has given a target price of 300p. The shares aren't the cheapest, but could reward a long-term speculative punt.