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Healthway Medical: Growing a defensive business.
Healthway Medical's growing in china.
Healthway Medical: A seven months journey.
In order to expand in China, Healthway Medical issued rights (1 for 5) at 7.5c to existing shareholders. This, I like. It allowed all shareholders to participate in the enlarged capital base of the company. Coverage by DMG with a target price of 28c sent the share price soaring soon after. Although I believed that Healthway Medical's valuation was inexpensive at 13c then when compared to peers such as Raffles Medical Group (RMG) and Parkway (and if we compared it to Q&M Dental, it was dirt cheap), seeing the price moving rapidly from 13c to hit 19.5c in a very short period was just unbelievable.
Fundamentally, at the CR price of 19.5c, it had similar valuations as RMG at that point in time. Technically, 19.5c was an eventual target provided by the chart pattern then. I divested as its price hit various levels of resistance on the way up and was 80% divested by the time it retreated a cent from 19.5c.
Healthway Medical - Rising too quickly?
Healthway Medical: A beautiful symmetry.
Rationale for partial divestment.
The CR target price of 19.5c translates to a XR target price of 17.5c. A CR target price beyond 19.5c was 24c and the XR target price beyond 17.5c is 21.5c. DMG later lowered their target price from 28c to 21c to take into consideration the dilution resulting from the rights issue as well as a share placement that would be taking place. The proposed share placement is good and bad and I have blogged about it before.
Healthway Medical: XR.
Healthway Medical: Share placement.
Today, I received a circular from Healthway Medical for an EGM on 9 March 2010. The following resolutions are being put up for a vote by shareholders:
1. The Proposed China Expansion Plans.
2. The Proposed IFC Placement.
3. The Proposed Placement.
Healthway Medical's management is being very forthright with all the risks which it might face in its proposed plans to expand in China. In total, there are 11 risks listed. Not great bedtime reading, for sure. This is why I have mentioned before that the plan is good and all we have to worry about is its execution. We can only hope that the management is up to the tasks at hand and that they have a measure of good luck on their side as well since, realistically, we cannot expect the entire process to be without hiccups. However, the management's strong track record in Singapore is re-assuring and we hope for the best.
That a member of the World Bank Group, International Finance Corporation (IFC), is going to take up 108,000,000 placement shares at 13c per share is a positive. IFC is going to be a long term partner and its track record of more than 50 years in creating opportunities and improving lives in emerging markets will raise the corporate profile of Healthway Medical. IFC will also extend a term loan of US$15m for a period of 10 years as a substantial shareholder of Healthway Medical.
A share placement at 13c per share is also being offered to two controlling shareholders and three substantial shareholders of Healthway Medical. This is to ensure that their aggregate interest in the company remains substantially unchanged at 44.6% and it also demonstrates the five shareholders' confidence in the growth prospects and plans of the company.
Healthway Medical's star is shining bright but the risks which are inherent in their ambitious plans to expand aggressively in China cannot be ignored. The journey will be a long one and fraught with obstacles. Shareholders will have to believe in the management and their vision. Having said this, shareholders will also have to keep an eye on the progress that is being made and adjust their expectations accordingly.
Investing in a company with confidence and holding with conviction is not the same as blind faith. Periodic reviews are still necessary. This brings me to the most important part of this post:
Number of shares:
As at 30 Sep 2009: 1,384,752,983
Upon completion of Rights Issue: 1,647,665,980
Upon completion of Proposed IFC Placement: 1,755,665,980
Upon completion of the Proposed Placement: 1,841,539,384
The much enlarged share capital of Healthway Medical is something shareholders and would be investors should bear in mind. Buying Healthway Medical's shares today at 13c is different from buying it at 13c in December last year which was the last time I bought some before it issued rights. Buying it at 13c now is closer to buying at 14.5c in December. So? It means that Healthway Medical's shares are not as cheap as before.
EPS would be about 20% lower and PE is less attractive. Fundamentally, at 16c, its PE would be 20x once all the proposed share placements are approved and effected. This valuation is similar to RMG and I would, therefore, consider 16c per share as a fair value for Healthway Medical from a fundamental perspective. Buying at any higher price would be a bet on the future earnings of Healthway Medical which cannot be determined with any great amount of certainty at this point in time.
I still have 20% of my original investment in Healthway Medical which were purchased at prices ranging from 10c to 13c. I still have shares which were given to me as scrip dividends which are about 11c per share in cost. I have also left a small position of those I bought at 16.5c XR as a hedge which is now losing money (which is what hedging does sometimes), having divested most of it at 16c and incurring a small loss when support became resistance. Finally, I have some entitled rights and excess rights which I got at 7.5c recently.
Fundamentally, I do not see a compelling reason rooted in the present to increase my investment in Healthway Medical. Technically, the counter might provide trading opportunities and I have identified 17.5c and 21.5 as the resistance levels to watch. 13c should be a strong support level. Good luck to all fellow shareholders.
Bloggy Award
27 comments:
Hi, AK71,
U have done a brillant analysis of Healthway Medical. What u said is exactly true.
My greatest concern was also the large share base which i mention to u before.
newbie123 whom posted before in nextinsight forum
Hi newbie123,
A company with a large number of shares in itself is not something I would be concerned about. After all, there are many companies out there with more than a billion shares issued.
An enlarged capital base, however, is something that requires greater scrutiny as that brings with it definite dilutive effects which would affect valuation.
We can only hope that Healthway Medical will be able to execute its plans in China successfully and that we would see positive contribution sooner rather than later.
Basically, we want to see EPS rising. If EPS falls, it might spell trouble for the share price.
Thanks for the compliments and do come back often. :)
Hi, Ak71,
True. Although the no of outstanding share did not matter that much, research did show that a stock with a lower share base (excluding REITS) tend to be able to give a higher dividend yield compared to one that has a higher share base.
The dip in the EPS is the main concern right now, though its net tangible asset will rise since it will have $100 m cash on hand if the placements are voted successfully in favour.
To be frank, the outcome is almost certain. The placements will have almost a 99% chance of being passed through successfully because small shareholders have little say. The substantial shareholders and the doctors whom worked at Healthway will certainly vote for the placement.
I am still holding onto my Healthway shares... Rem the news I shared with you when Vantage Corporation tries to offer S$455 million to do a reverse takeover in HW in 2007 (though the deal was not realised). The present HW should be worth far more than S$455 million. I just have a strong feeling that Healthway could become an acquisition target by a big company (could be Parkway etc) and that will be the day when our investments would reap fruits. Don't know if that day will come though... but it's a possibility. What Healthway does not have, Parkway has and what Parkway does not have, Healthway has. Well, assuming if a 700 m - 800 m offer was made and divided that by 1.8 billion share... well, just a dream which may or may not come true.
I did spoke to my doctor friend whom worked in Healthway. Seems like they do have the contacts, licenses etc to start their business. Got good chef and good ingredients. So, what we want to see is the outcome of a good food.
newbie123
Hi newbie123,
Thanks for the detailed comments. :) Yes, we are only small shareholders. Nothing much we can do.
I am generally in favour of the business expanding in China. It is a good plan but execution risks are aplenty. A list of 11 risks does start people thinking. ;)
Well, here's hoping for the best. For sure, I would like some good food. :)
Today, i noticed a lot of induction tactic. bbs trying to sell at 15.5 cents and buying back at 15 cents from those weak contra holders.
Seems like HW's substantial directors has been selling and buying back to increase their holding stake (their intention is obvious; for the upcoming EGM)
True. But i rather they detailedly list down all the possible risks so we, investors are mentally prepared for the worst. It's always better to underpromise than overpromise.
Yup. Let's hope for good food together too.
newbie123
Hi, AK71,
Did u notice:
Dr Tan See Leng was recently appointed as the CEO of Parkway Holdings.
And before that, Dr Tan See Leng was also one of the founding members of Healthway Medical Group, together with Dr Wong Weng Heng.
I am not sure why Dr Tan left the board of Healthway medical but being a founder, I am sure he knows the business of Healthway deeply very well.
And, if my dream prediction are to come true one day, yes, Dr Tan See Leng will be the best person to synergise the two companies together for a better collaboration.
newbie123
Hi newbie123,
Thanks for sharing this. I was not aware of it. We can only guess at the reason why Dr Tan chose to leave Healthway Medical.
It would be nice for all Healthway Medical's shareholders (including yours truly) if your dream comes true. :)
I am your fan. Outstanding analysis which takes time and prodigious effort.
Hi Roger,
Thank you very much for the compliments. Puts a smile on my face. Do visit often. :)
Hi AK,
Thanks for sharing! Great review of healthway medical. I'll still be keeping a close watch on healthway medical. And if i'm to enter, will probably just do a small investment. As you've explained, it has potential and a lot will depend on the execution of its plans. And maybe as well as how the world/china economy unfolds.
Hi Royston,
I am glad you find this post useful. That the economy in China and, in fact, most of Asia would do well in the near future is almost a given. So, yes, my biggest worry is about execution of the expansion plans in China.
After all, an experienced and capable management in Singapore might not automatically translate into an experienced and capabale management in China since the way the game is played might be quite different in China. Furthermore, the management probably has to start from almost ground zero where experience is concerned even though their exposure in Shanghai should give them a leg up. This is a big worry.
As of now, I still retain about 5% of my initial investment in Healthway Medical. I am prepared to hold these shares through the near term uncertainties to see how things would turn out. :)
If you travel in China one thing you'll notice is the large numbers of Chinese traditional shops but a clinic with a western-trained doctor is a rarity. Thus HM 's foray into China may be difficult. Perhaps, the expats would find HM more welcoming.
Hi Roger,
The Chinese government has made quality healthcare accessibility a top priority. The role of western medical science will gain greater importance in the country.
However, I remain concerned about the risks which are inherent in Healthway Medical's plans to expand in China. To its credit, the management was very forthright to list out the risks very clearly.
There is little that minority shareholders like myself can do but to trust the management to do a good job. We can only wait and see.
healthway rising !!!
And congratulations to all who are still vested. :)
Hey,
Thanks for sharing this link - but unfortunately it seems to be down? Does anybody here at singaporeanstocksinvestor.blogspot.com have a mirror or another source?
Thanks,
Harry
Hi Harry,
There are quite a number of links in this blog post. Which one are you referring to?
I checked them one by one earlier. They seem to be OK.
A wise man changes his mind, a fool never will.
Hi Anonymous,
Well said. :-)
Could you include your name or initials in future comments? Thank you.
Hi, AK71,
Could you share with me which day of the following dates is the last day to get dividend? Thank you very much for your time.
Ex-date : 10 May 2011
Buy-In Last Cum Date : 12 May 2011
Record Date : 12 May 2011
Your Sincere Fan,
Sanmuzi
Hi Sanmuzi,
If you have bought shares XD, they are not entitled to dividend payment. Only shares you hold or bought CD are entitled to dividend payment.
The XD date in your case is 10 May 2011. Hope this helps. :)
down and down, and down, I lost almost 50% in half a year
Dear Anonymous,
I am very sorry to hear this. If you are no longer confident in the company, selling away the nil-paid rights might make more sense than accepting and paying for them.
Could you include your name or initials in future comments? Thanks. :)
Any good new from this company, been staying at this price for long.
when will the fruit ripe???
Hi xiaoqin,
In their last report, they improved their numbers quite a bit. They closed down loss making branches and reduced expenses.
Their PE improved from 100x to about 40x. However, it is still expensive.
See report here.
When would I think Healthway Medical is a buy again? That is a tough one.
I could be suffering from the memory effect here but when I first got interested in the company a couple of years ago, its PE was a mere 10x. ;)
Heard the original Dr Wong has left.Dr leong the next CEO also left.
What is happening ?
Biten
Hi Biten,
Your guess is as good as mine. If it bothers you enough, send them an email to find out. :)
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