Healthway Medical: A boost from DMG & Partners.

Healthway Medical's target price was revised upwards by DMG & Partners to 26c from 21c after being reduced from 28c not too long ago.  Target price is raised this time "taking into account the potential growth that the new clinics can generate, despite an enlarged share base."  Why didn't they take this into account the last time when the target price was reduced to 21c (the reason given for the lower target price being the dilution from an enlarged share base then)?  It went on to say that "Healthway can potentially open another 30 medical centres in China....This would fuel earnings growth going forward."

Let's look at the charts today.  Price moved to touch a high of 18c after breaking a stubborn resistance level at 17c, forming a white spinning top in the process.  Spinning tops usually signify indecision and are generally treated by chartists as possible reversal signals.  The MFI has moved into overbought territory while 18c happens to be the 138.2% Fibo resistance as well.  However, the expansion in volume today, as price pushed upwards, is impressive and is more than three times the volume of the last session.  This suggests that the price might push higher yet.  If this happens, the XR high of 18.5c will be tested next.

I have sold a third of my remaining position in Healthway Medical today at 17.5c which I've identified as the XR equivalent of 19.5c CR.  This is also fundamentally trading at 10% higher than the fair value I've ascribed to Healthway Medical's shares, which is 16c.  I will sell more if its price moves to retest 18.5c.  Beyond 18.5c, the ultimate bullish target I have is 21.5c which is the XR equivalent of 24c CR I arrived at a couple of months ago.  At 21.5c, I would divest almost all of my investment in the company.  I would have hit my targetted investment returns then.

I maintain that buying into Healthway Medical at prices higher than 16c now is a bet on a very strong improvement in future earnings, strong enough to recover all the EPS lost in dilution and more.  It has to be more or else, Healthway Medical's fair value would stagnate.  I would prefer to be cautious in the midst of too many potentials, especially when mostly positive potentials have been emphasised.

Related post:
Healthway Medical: An updated valuation.