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Healthway Medical: Business diversification.

Wednesday, October 20, 2010

I received a circular from Healthway Medical. This is in respect to a proposed business diversification.  Diversification? Aren't they having enough trouble trying to keep their numbers from worsening? Well, maybe, I should not jump to conclusions. Let us take a look at what is happening.

A new company, Healthway Medical Development (Pte) Limited was set up on 22 Sep 2010 as an investment holding company. This joint venture company in which Healthway Medical holds a 25% interest, hopes to "capitalise on the numerous real estate opportunities in the region, in particular the PRC, by tapping on the Medical Development Business to develop real estate projects with medical and healthcare facilities with the aim of accessing new and emerging private healthcare services markets." (on page 9 of circular)

Honestly, this sounds attractive. Any risks? Just as in its proposal to expand its business into the PRC, Healthway Medical listed the risks involved in the proposed business diversification: a total of 12 points (3.4.1 to 3.4.12, pages 13 to 17)! It seems to me that the company is taking on too much risk.

Although it is stated that this proposed business diversification has no significant financial impact on Healthway Medical's NTA per share or EPS for 2010, it was further stated that "should there be any material impact.... for FY2011, the company will make the necessary announcements at the appropriate time."  Has this been deliberately left vague? I do not appreciate this.

I feel that Healthway Medical's management have their hands full. The numbers in the last two quarters have been disappointing, to put it diplomatically. Could this proposed business diversification put further stress on resources which could already be spread thin? If Healthway Medical's share price is anything to go by, its recent weakness hints that I am not the only shareholder who is unimpressed by its performance.

A gravestone doji formed today as price closed at 15.5c.  As the MFI is in very oversold condition, price could experience a brief rebound and it might be a good chance for stale bulls to lighten their long positions, if any. Strong resistance could be expected at 17c.  This is where we find the 200dMA and it is also where the falling 20d and 50d MAs would be approximating soon.

Related post:
Healthway Medical: Second quarter results.
Healthway Medical: Testing 16c support.


mark said...

I wonder what the remiser king will have to say.

AK71 said...

Hi Mark,

Maybe he knows something we don't. ;)

AK71 said...

Hi Mark,

I think we have our answer:

Lim Eng Hock

Date of change of Interest: 14-10-2010

From 7.17 % To 4.85 %
Sales in Open Market at Own Discretion

The change in the percentage level is the result of a series of transactions.

ortho said...

Hi AK71,
Is Healthway a good buy now? Also, what is your view on China HongX?

AK71 said...

Hi ortho,

Healthway Medical's valuation is currently pretty expensive. Its EPS has been declining and it seems to have too much on its plate.

Healthway Medical: Second quarter results.

Technically, it could be entering oversold territory and we could see a rebound. Whether the rebound could become something more sustainable is hard to say.

Currently, it does look as if the chances of a continuing downside are higher than any upside.

As for China Hongxing, I only went in for a quick trade. I did not do any fundamental analysis on this. Question why do you want to go long on this counter and examine the numbers to see if they sync. That's the way to go if you are looking at it as an investment. Good luck. :)

Drizzt said...

this sounds to me like diworsification


AK71 said...

Hi Drizzt,

Haha.. I like that word. Yes, this reminds me of Bilbo Baggins (in Lord of the Rings) saying "I feel like too little butter spread over too much bread". Spread thin, I think. ;)

Anonymous said...

hold or sell? how come i never receive any circ from them as i have also shares in healthway. when is the egm? shareholder with no circular can attend?

AK71 said...

Hi Anonymous,

You could check SGX website for details. It is strange that you did not get a hard copy of the notice.

I have only a small position left in Healthway Medical consisting rights shares and scrip dividends. I am keeping the status quo.

Could you include your name or initials in future comments? Thanks. :)

Anonymous said...

Interestingly, Peter Lim has made a whooping S$0.5 billion takeover offer for Thomson Medical !


AK71 said...

Hi Nick,

Win some, lose some. That is life, I guess. ;)

Drizzt said...

haiz. this is another miss out nick!


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