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Healthway Medical: 1 for 8 rights issue.

Friday, April 1, 2011

I just went to an ATM to subscribe for the rights by Cambridge Industrial Trust earlier this evening. Now, I have another rights issue to contend with. Healthway Medical is also having a 1 for 8 rights issue. See announcement here. The rights will be priced at 7.5c per piece.

On 2 March, I suggested that no investor would put money in the company at 14c per share because it was trading at a PE ratio of 100x! I also said that "Immediate support is at 13.5c but if this were to break, we could see 12.5c next." Its share price went on to test 12.5c for 7 sessions later in the same month. Price closed at 13.5c today.


Technically, the counter is still in a downtrend and this is defined by the 50dMA which coincides with the trendline resistance. Resistance is currently at 14c. The MACD is rising in negative territory and it looks like it could cross into positive territory if the strong momentum of late continues. Does this mean that, for some reason, market participants like the rights issue which is heavily discounted?

What would I do? I still have a small investment in the company. Fundamentally, it does not make sense to throw more money into a weak business. Technically, unless I see some hints of a reversal, I won't bother going in either. So, I could simply sell away the nil-paid rights and sit this one out.

Related post:
Healthway Medical: 4Q 2010 results.

10 comments:

financialray said...

Hi AK 71

Thank you for your in depth analysis.
Also realise your main strategy of investing for income.
What is your opinion of buying Kep COrp now? They are offering a 1 for 10 by end April. Do you think it will push the price of Kep Corp higher since there is a sale offer?

Royston said...

Hey AK,

Any particular reason for the drastic drop in earnings for Healthway? Thanks!

AK71 said...

Hi financialray,

Keppel Corp would probably continue to do well because of all the positive coverage it is getting.

Fundamentally, it is very strong and the rising price of crude oil will support its business.

I am sorry but I don't follow the corporate news of this company closely. 1 for 10? Is this a rights issue?

AK71 said...

Hi Royston,

I remember you said you would consider buying into Healthway Medical if it were 10c a share.

I cannot remember if I said this but 10c a share was when I first bought into the company in mid 2009. 10c a share in mid 2009 was cheap. 10c a share now is not. ;)

Why are its earnings dropping? I believe that it lost many good doctors who left to set up their own clinics. It is spending a lot more money to retain staff now. Lower revenue, higher costs. Not a good combination.

financialray said...

Hi AK71,

I believe it is a bonus issue of 1 for 10 shares for Kep Corp.
If psychological mind of retail investors are like our ladies during Great Singapore Sale, then perhaps there may be a rush for Kep COrp shares soon. Buy 10 Get 1 Free. Throw in Petrobas orders from Brazil and its really like sprinkling oil to fire.

AK71 said...

Hi financialray,

Oh, a bonus issue. I have always wondered at bonus issues. It is not as if the company has suddenly grown 10% richer or anything. It is just giving 1 share for every 10 shares owned and that's just paper.

So, if a share is worth S$1 now, does it mean that the company is giving away S$1 for nothing? To me, it simply means that each share would be worth 90.9c, fundamentally. Logically, the share price should fall.

Of course, what the market thinks could be something totally different. I am talking about value and the market could be all about price. ;)

financialray said...

Hi AK 71

Yes I agree with u that once bonus issue is announced, the share will be worth less once the bonus issue is over. Tricky thing is after the announcement, Kep Corp went on to announce wave after wave of new rig orders....so maybe difficult to stem the rise in the share price in my opinion.
How about Q and M? Looks like this stock having higher high and higher lows. Another healthcare stock I thought worth looking at.

AK71 said...

Hi financialray,

Value and price, always a constant tug of war. ;)

Q&M dental? The last time I mentioned it was in September 2010 and even then, it was only in passing. Fundamentally, I find it somewhat expensive.

I just took a quick look:
Share price: 67c
NAV/share: 9.4c
EPS: 1.47c for year ending Dec 2010(this is down from 1.84c for year ending Dec 2009)

PE ratio: 45.58x. This is not as bad as Healthway Medical's 100x. Half as bad? ;-p

No, not for me. Too expensive.

OT83 said...

the management say that they are determined to restore the profiability to their previous level. but now they ask for rights again!

AK71 said...

Hi OT83,

They would have to increase the EPS 10x. With this rights issue, it makes their task just a tad more demanding. However, if they need this money to make it all work out, shareholders have to decide whether to go along with it.

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