Healthway Medical: A seven months journey

One of the best performers in my portfolio in recent times has to be Healthway Medical. I started accumulating shares in the company in June 2009 at 10c and I was actively contributing in various forums on why Healthway was a value buy and how its intrinsic value should have been higher. I walked the talk and was actively buying up more shares in Healthway Medical over time and my last purchase was in December 2009.

I had to constantly explain to people why I was so convinced that Healthway Medical was a value buy. Most were more attracted to Parkway or RMG. To be fair, there were believers and there were skeptics. Here were some of my replies (edited for brevity in some cases):

7 Nov 09:
I started accumulating shares in Healthway earlier this year at 10c.
Fundamentally, a strong company....... Successfully breaking the top of the cup formation seen earlier at 14.5c would give an immediate target of 17c and an eventual target of 19.5c. Patience will be rewarded.

9 Nov 09
I am not too concerned about Healthway paying little or no dividend. This is a growth stock, not a dividend stock. I opted for scrip dividend instead of cash the last time.

There will always be growing pains and uncertainty. That's why Healthway is trading at 11x PE while RMG is trading at 19x PE. There is a discount for risk but I feel that it's too heavily discounted. A 17c target which translates into a PE of 14x for Healthway is realistic.

23 Nov 09
Healthway's chart is interesting. Its price is going through a protracted consolidation period after the cup formation was completed in August. 9.5c is the lowest point of the cup while the brim is at 14.5c. The halfway point is 12c.

The lowest price in the consolidation period since August is 12c in late October. This cup with a very long handle is seeing volume dwindle over time. As the MFI and Stochastics show, there is simply no momentum in this counter since mid August. However, OBV shows consistent accumulation and this picture has not changed.

This is a counter for long term investors but if I'm going to do a bit of crystal ball gazing, I am willing to hazard a guess that price might see a significant upmove end of this year or early next year. Rising 20wMA and 100dMA at 12.5c should limit any downside.

2 Dec 09
Some say that Q&M is overpriced. I am of the opinion that Healthway is too cheap and should trade closer to Q&M's PE. A PE of 14 for Healthway translates into a price of only 17c. At 19.5c, the PE would be about 16.5 which, I feel, is about right. The current weakness in Healthway's price presents an opportunity to accumulate and I've done so.

4 Dec 09
Insiders can sell shares in the company for many reasons. Maybe, they are buying a new property or meeting some other expenses.

I am not usually concerned when one or two insiders sell some of their shares. I will, however, take notice if insiders are selling en masse and in larger percentages which is not the case here. In the last dividend payouts, insiders opted for scrip dividends rather than cash. Updates on 20 Nov 09. I did the same.....

13 Dec 09
...How do I usually decide on whether a company is a worthwhile investment these days? Firstly, I look at the sector versus the economy. Secondly, I look at the company's numbers to ensure that it is not over-valued, that it is profitable, that it is not too highly geared and that it has good cashflow. Thirdly, I compare the company's numbers to its peers. There are other things which I might look at in time but these 3 points form the core of my fundamental analyses. Then, I use technical analysis (charting) to decide on fair entry points.....

13 Dec 09
I only took notice of Healthway as its price was recovering from its bottom this year. I was attracted to it because of its dominant position in the domestic primary healthcare sector. This, I viewed as a strength in times of recession as it did not depend so much on medical tourism like RMG and Parkway do. It is a business that, even if managed by a conservative management, would continue to benefit from strong cashflow and would in time amass a cash hoard. My first purchase was at 10c. This was below its NAV at the time.

Since then, the more I learned about the company and the business, the more convinced I am about the future of the company. My concerns regarding the fundamentals of the business have been mostly addressed.

In terms of the price, it is seeing some weakness. I believe that 12c should hold. It is exactly the halfway point of the cup pattern which I identified earlier. Price action might be going through what Darryl Guppy calls "correction using time".

You have asked me questions on the history of the company but I'm afraid I do not have the answers as I'm quite a new shareholder (and do not have the emotional baggage and knowledge of older shareholders).

Taking a leaf from Dr. Tony Tan's book, I do know that I have taken care of the downside in my fundamental analysis of the company. I will leave the upside to take care of itself. I can wait.

On Christmas Eve of 2009, I wrote an article in my blog titled Healthway Medical: Growing a defensive business. My blog was still very new at the time but I've been a firm believer for 6 months by then.

I have, by now, divested 50% of my position in Healthway Medical, selling at every resistance level which is my style. The technical target of 19.5c has been achieved in just one week. I am still rubbing my eyes in disbelieve, to tell the truth. A correction at this point in time would be healthy. Of course, Mr. Market is always right and my opinion should not matter. To one and all, have a good week ahead! :)