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Healthway Medical: 4Q 2010 results.

Wednesday, March 2, 2011

Not expecting any spectacular improvement in numbers from Healthway Medical. Let's take a look:

1.  Revenue declined 23.8% in Q4 compared to the same period last year.  For the full year, revenue declined 12.2% compared to the previous year.

2. Staff cost increased 11% in Q4 compared to the same period last year.

3. Profit before income tax decreased 68.2% to $1.133m in Q4 compared to the same period last year.

4. Cash flow from operations is positive for the quarter at $6,289m. This may seem like a good thing but scrutinise the numbers and we realise that most of this is because of trade and other receivables which came up to $6,927m. If we take these away, cash flow from operations would be negative.
 
5. EPS for the quarter is 0.04c which is an improvement over the 0.01c in Q3 but down from 0.23c in the same quarter last year. Full year EPS 0.14c.

See results here.


Although the numbers are still bad, generally, the numbers are getting less bad. The increase in staff cost seems to be slowing down while the reduction in profit is not as severe as before. Even the negative cash flow from operation situation is less serious now as compared to negative $2.3m in Q2 and negative $1.278m in Q3.

With an EPS of 0.14c, Healthway Medical is trading at a PE of 100x. No investor worth his salt would touch this. However, there could be opportunities to trade this counter and I would view any rebound as a chance for stale bulls to reduce exposure.


Immediate support is at 13.5c but if this were to break, we could see 12.5c next. Strong support is to be found at 11c. Technically, the only encouraging sign is the MFI which shows some underlying support with higher lows.

So, if we do not see a sell down tomorrow, it would suggest that only stoic long holders are left. In fact, from the peak achieved on 16 June 2010, volume has been declining as share price retreated. No matter how dismal the fundamentals are, if all the sellers have sold, share price could begin to bottom in earnest. Wait and see.

Related post:
Healthway Medical: 3Q 2010 results.

34 comments:

Anonymous said...

This is depressing, I am holding more than 250 lots bought in at 16 cents - wrote in to question the murky communication past few quarters, they didn't even update their website. emails to their investor relations person went unanswered, even HMI bothers to reply but not healthway.

Learning a couple expensive lessons here:

- don't trust your money on incompetent management
- if it's too good to be true, it probably is
- don't put in small stake as retail investors, nothing you can do when things are sliding downwards
- stick to proven names backed by big investors

can't pull out now, am down 6K+ in losses so just have to ride it out. reminder, there's a couple healthcare groups that lost their traction and just goes downhill, like SMG, Pacific healthcare.

healthway got to turn around now, else it will be too late.

AK71 said...

Hi Anonymous,

I would caution against a negative attitude towards all smaller outfits and only "stick to proven names backed by big investors".

When I first discovered Healthway Medical in mid-2009, it was very much undervalued and a great investment.

By the time I divested in early 2010, many things had changed and I came up with an Updated Valuation of the company and sounded out caution in my blog. Sentiments were running high then and people did not pay much attention to the signs.

Even big companies could turn out to be lemons. I lost quite a bit of money in Chartered Semiconductor which was backed by the biggest investor in our country.

So, we have to constantly monitor our investments, doing FA and TA. There is no other way, in my opinion.

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

GT said...

thanks, where do you think healthway is headed? just read a SGX notification that gives 25% stake in some of their china clinics to some management staff, maybe incentive for the management to drive harder. they did put together a good team but those doctors got to play it properly. the hardest part in running a healthcare practice is dealing with specialists who knows they have options.

AK71 said...

Hi GT,

I am not a healthcare industry insider. I based my initial investment decision on the financial reports and by comparing against peers like Parkway and Raffles. At that time, Healthway was doing very well and really undervalued.

In my blog post which I did an updated valuation of the company, I suggested that the market was pricing in the success of the company's plans in China.

It is really investing in the future and there are so many unknowns involved. Whether the management could execute its plans well is a big question mark.

Over the last one year, the quarterly reports are showing a slowing down of deteriorating numbers. Things are getting less bad. Let's see how things go this quarter.

GT said...

thanks, i think that's pretty fair call. they are heavily pegging the incentives to the current management team with the given stakes in the upcoming clinics in china. yes, if china takes off for healthway, this could be the cash cow to attract investors, not only from singapore. i have no choice but to hold.

i sold rehabcare in the US for 10% profit just before they were sold to another healthcare company and shot up 100% overnight. it was in a matter of weeks.

AK71 said...

Hi GT,

That must really have hurt. It just goes to show that it is impossible to see the future with any clarity.

Fortunately, my divestment of Healthway Medical shares netted me gains of between 10% to 90%.

Now, I will see if whatever shares I have left from the rights issue and scrip dividends could make me a bit richer. ;p

GT said...

reading your comment that Healthway PE is 100x, i am close to giving up on this stock and writing it off expensively. the problem with SGX, even worse, Catalist, versus NYSE or NASDAQ is that information is less forthcoming - i will NEVER buy a healthcare stock on US market with PE 100x even though whatever story they are selling. so amazingly, my biggest share holdings is in healthway, ironic and lesson learnt. maybe miracle will happen.

AK71 said...

Hi GT,

Yes, maybe, things could improve. ;)

When I first bought into Healthway Medical, its PE ratio was only 11x. It became 20x by the time I divested a big chunk of my investment in the company for a nice gain.

A PE of 100x could be the final straw for many investors or so I thought when I blogged about its 4Q 2010 results. Surprisingly, no heavy selling took place.

This led me to think that most of the sellers are gone and those who are left are stoic investors who still believe in the company.

Healthway Medical is your largest investment currently? I imagine you would be doing some serious thinking tonight.

GT said...

Yes unfortunately so - I sunk in a large chunk into Healthway because they had a very good model.

Diversified branding and independent units, lesser business risk if there's a brand damage. unfortunately, didn't factor in the lack of inspirational leadership on the management side and the difficulty in handling specialist doctors (prima donnas i can imagine some, not all go into healthcare for altruism else they will still be in government service).

healthway bought these companies with the specialist doctors who (i am guessing, might be thinking that they can cash out and restart elsewhere, their patients will follow). so this is a lesson for the management.

and small retail investors like me are paying the tuition fees for the blur management team. if you see, their big shareholders don't have healthcare experience, so unlikely to guess that the doctors might 'play' them out. or may lack the soft side to deal with the doctors.

but i see some sights of hope, they should be getting their act together.

i have no choice but to hang on, as long as they continue their budget control, which i believe is quite good compared to the other two catalist specialist diversifed medical groups, SMG and pacific healthcare.

p/s the opinions above are entirely my own generated from reading reports, etc.

just put in disclaimer in case.

but nonetheless, healthway remains an attractive option because of their strong GP networks, branding, down to earth cost control, learning in progress, outreach into the chinese market.

if anyone can succeed in the chinese healthcare market, it might be healthway because they are tight knit enough at management level and decentralized at the patient level.

needs at least 2 years to see picture properly, except i don't think the new CEO is as charismatic and strong as the previous dr wong founder.

but that happens, the founder usually exits the business at some point.

AK71 said...

Hi GT,

Thank you so much for taking the time to write such a detailed comment. I appreciate it. :)

I agree that Dr Wong was a very charismatic CEO. He also has very good credentials and background. In fact, he was one reason why I chose to invest in the company in mid 2009.

I think you are right in assuming that Healthway should be improving and getting its act together over the next couple of years. Most certainly, its numbers are looking less bad with each quarter.

Good luck to us all. :)

GT said...

most welcome, i needed to vent on healthway, it's part and parcel of learning how to invest on my end. it's a mistake but the business fundamentals and potential is good, just that execution went horribly wrong. Dr Wong is good but he's really a GP, so his specialist might not see him as peer even though he's a businessman more than a doctor in his role with healthway.

i have to hold on for another couple years, they are not going to go away but they will take a while to turn around and china remains bullish, who wants to see TCM forever? i've seen one and i have no idea where some of their ideas come from. it's better to go for western medicine if you have a real problem to resolve although better not those that charge 24M!!!!! goodness, was quite upset by the dr susan tan story, since it can possibly impact medical tourism in singapore.

another strong point for healthway if the government pushes for transparency, as i noticed healthway provides competitive and transparent pricing.

they are also less extravagant in choosing triple one somerset instead of paragon!

cheers,

AK71 said...

Hi GT,

I am glad that my blog is able to provide you with an online venue to "vent" on Healthway. ;)

Frankly, I still like the story that is behind Healthway and its push into China. It is just going to take a lot of time and a very competent management to see it through.

Healthway could improve its EPS yet and that would move it away from a PE ratio of 100x. ;-p

GT said...

hi AK,

thanks for this forum too, i think the management will eventually turn it around - how long? dunno but some of them have invested alot of their own money in it, so they will be around. however, they need to weed out the unhappy doctors and replace with people who want to win as a team. i noticed raffles medical has a better HR policy, some of their GPs are very dedicated. so i bought raffles medical and HMI as well, just like healthcare but it doesn't make as much money as commodities for sure.

AK71 said...

Hi GT,

I am glad you like my blog. Tell your friends and family about it. Spread the word. Higher traffic would help push my blog to greater heights. ;)

I was invested in Raffles Medical too but sold too early. ;-p

GT said...

sure :) will post on my facebook !

AK71 said...

Hi GT,

Thank you very much. :)

I am just beginning to discover the wonders of social media at the age of 40, well, almost 40.

If social media could help bring down Mubarak, it is a force to be reckoned with! :)

GT said...

40 is not too late, facebook is a force for sure - it's worth 65B. btw, healthway just crashed through to 13cents, just waiting to see how low can it go.

AK71 said...

Hi GT,

If we believe in charts, strong support is seen at 11c. Of course, this does not mean that it would hit 11c at all. It simply means that if tested, 11c should be a strong support. :)

GT said...

Thanks AK, yup - Healthway hit 13 cents today, am trained by the economic crisis, expecting it to drop 20-30% before hitting the panic button i guess. as long as i don't sell and can hold, it should be alright in next 3-4 yrs. cheers,

AK71 said...

Hi GT,

Healthway does look somewhat weak, technically. However, the selling down is on very thin volume. So, in that sense, it is not too worrisome.

However, price could drift lower on low volume too and I would look out for technical signals on possible reversals in such a case. This could take time to form. Good luck. :)

GT said...

thanks AK, i am feeling that there could be something brewing and the previous results says that the management hopes to return to previous profitability, it could be a modest statement. so just as long as they are still liquid and their business is sound - long term they should still be around for chance to rebound. waiting for the next results posting in may.

AK71 said...

Hi GT,

Yup, it is too early to write off Healthway. :)

They also said something about a potential investor, I remember. ;)

GT said...

Haha, going by their ability to scare of their own CEO, Peter Lim and lose revenue/profits in the same year, i wouldn't count too much on their ability to impress another big fish so soon :p

However, i think they have a future but no hope for now until they manage to get their act together and get doctors committed...though as a vested investor, i hope its sooner than later :)

AK71 said...

Hi GT,

Although my remaining investment in the company is smallish, I am also hoping for the best. Till their next quarterly report, good luck to us all. :)

lxcid said...

Thanks for the analysis. I'm a really small investor looking to put his money in somewhere other than banks.

I think I will buy some Healthway shares and hold out for a few years. I'm generally looking for growth for my current purchase. My strategy is to expose to growth not too far fetch and healthway seems doing so and on the turn.

With the market bad condition due to many political and natural events playing out, I see an opportunity to enter at a cheap price. With them released their report and general market lost of interest in them at the moment, I find myself liking this company again. Will probably to enter within these 2 weeks a small amount.

AK71 said...

HI Ixcid,

You are welcomed.

Although I do not think Healthway Medical is cheap anymore, I wish you the best. Good luck. :)

GT said...

healthway just posted net income increase of 400% !

AK71 said...

Hi GT,

Thanks for the update! I have been apathetic about Healthway Medical for some time now although I still have 5% of my original investment in the company left.

It seems that Healthway Medical had a good 2Q 2011. The 442% increase in total comprehensive income over 2Q 2010 is a nice development.

This came about from the divestment of loss making clinics. So, improved earnings came about from cutting losses and not from expansion. Not a glamorous way to improve earnings but one that works and that is good enough for now. :)

GT said...

Yeah that's what my fund manager friend said as well although now they need to focus on driving revenue with cleaned up operations, it should be looking much better one year from now. and read that their chairman was from parkway, could be good news. another is that the market cap now is less than 200m, noting that grapevine said peter lim offered 400m...hmm. i have added to my healthway stake in the recent market crash. thanks to S&P

AK71 said...

Hi GT,

Congratulations on your recent purchase of more Healthway Medical's shares at bargain prices. ;)

I did a quick back of the envelope calculation and arrived at a PE of 40x (at the current share price of 8.7c) provided that the company can continue its 2Q 2011 performance.

This is a vast improvement over a PE of 100x just 6 months or so ago. However, it is still expensive. I will wait and see. :)

GT said...

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=HMED:SP

yup indeed, PE is round about your calculation although PB is looking better for healthway. hopefully, they will increase revenue in the next couple quarters while keeping their healthy operating income. that'll be neat.

AK71 said...

Hi GT,

As Healthway Medical has a lot of intangibles in its NAV, I look at its EPS as a more useful gauge of value.

You are right, we can only hope that it will continue to do well. :)

Anonymous said...

any further input on healthway medical on the long term prospect of this company?

AK71 said...

Hi Anonymous,

None for now. We can only wait and see if its recent efforts will continue to improve its numbers.

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

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