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! :)

Q&M Dental Group

Q&M Dental Group's share price has more than doubled since its IPO a month ago. Yes, more than doubled! IPO price was 27c on 26 Nov 09. Price closed at 56c today. >100% gain in slightly more than a month. Phenomenal!

I just looked on in disbelieve as the price kept forming new highs. Based on FA, the valuation is simply too rich compared to peers in the medical services sector in Singapore.

With an estimated diluted EPS of 1.6c per annum, the PE for Q&M Dental Group at 56c is about 35x! This is much higher than Parkway's 25x at $2.92 and Raffles Medical Group's 20x at $1.44 and these are large medical services providers! Compared to a peer closer to its size, Healthway Medical's PE at a price of 12.5c is only 10.4x!

Let's compare Q&M Dental Group with Healthway Medical, an undervalued counter in Singapore's medical services sector, in my opinion. Q&M Dental Group has more than 30 clinics islandwide but this is dwarfed by Healthway Medical's more than 80 clinics islandwide. In 3Q09, Q&M Dental Group's profit after tax went up 8.7% to $1.9m while revenue went up by 1% to $14m. Healthway's profit after tax went up 44.7% to $3.98m while revenue went up by 6.2% to $25.32m!

On 12 Dec 2009, shares of Q&M Dental Group were included for trade on the Freiverkehr in Germany. Perhaps, this has a large part to play in its current rich valuation. Fundamentally, that the share price is trading at a PE so much higher than Parkway and Raffles Medical Groups' is mind boggling. Will we see a correction or will Q&M Dental Group's share price continue to astound on the upside? Your guess is as good as mine but I'm not buying.
Healthway Medical: Growing a defensive business

Healthway Medical: Growing a defensive business

Healthway Medical has taken definite steps to expand into China with their platform in Shanghai. It has recently proposed to issue rights for further expansion into other Chinese cities. It will not remain purely a Singapore brand for long.

Healthway has been clever to identify and fill areas in healthcare services which are underserved. Their business model also creates strong cashflow. This gives a solid foundation for growth without being too reliant on financing.

Healthway has a historical PE of 13 (@13c). Parkway has a historical PE of 54.8 (@$2.41). RMG has a historical PE of 21 (@$$1.39). Figures by DBS Vickers. Parkway's 2010 forecast PE is 22. RMG's is 18. There is no forecast for Healthway.

However, if I were to hazard a guess, Healthway's PE would improve at the same pace as RMG's, if not more, looking at both parties' 3rd quarter results.

I know that the management has proven themselves so far to be astute and aggressive. The business is a defensive one with stable and growing demand. The management is not resting on its laurels and have grown the business rapidly. The business model enjoys a strong cashflow. Directors are committed to the business and have opted for scrip dividends instead of cash. This has diluted the NAV per share to <9c though. Healthway is a growth company in a defensive business. This combination, in my experience, if led by a strong, business minded management, is one for success. Healthway Medical's growing in China