Healthway Medical: Business diversification.

I received a circular from Healthway Medical. This is in respect to a proposed business diversification.  Diversification? Aren't they having enough trouble trying to keep their numbers from worsening? Well, maybe, I should not jump to conclusions. Let us take a look at what is happening.

A new company, Healthway Medical Development (Pte) Limited was set up on 22 Sep 2010 as an investment holding company. This joint venture company in which Healthway Medical holds a 25% interest, hopes to "capitalise on the numerous real estate opportunities in the region, in particular the PRC, by tapping on the Medical Development Business to develop real estate projects with medical and healthcare facilities with the aim of accessing new and emerging private healthcare services markets." (on page 9 of circular)

Honestly, this sounds attractive. Any risks? Just as in its proposal to expand its business into the PRC, Healthway Medical listed the risks involved in the proposed business diversification: a total of 12 points (3.4.1 to 3.4.12, pages 13 to 17)! It seems to me that the company is taking on too much risk.

Although it is stated that this proposed business diversification has no significant financial impact on Healthway Medical's NTA per share or EPS for 2010, it was further stated that "should there be any material impact.... for FY2011, the company will make the necessary announcements at the appropriate time."  Has this been deliberately left vague? I do not appreciate this.

I feel that Healthway Medical's management have their hands full. The numbers in the last two quarters have been disappointing, to put it diplomatically. Could this proposed business diversification put further stress on resources which could already be spread thin? If Healthway Medical's share price is anything to go by, its recent weakness hints that I am not the only shareholder who is unimpressed by its performance.

A gravestone doji formed today as price closed at 15.5c.  As the MFI is in very oversold condition, price could experience a brief rebound and it might be a good chance for stale bulls to lighten their long positions, if any. Strong resistance could be expected at 17c.  This is where we find the 200dMA and it is also where the falling 20d and 50d MAs would be approximating soon.

Related post:
Healthway Medical: Second quarter results.
Healthway Medical: Testing 16c support.

K-REIT: 10.2% DPU accretion.

On 11 Oct, I blogged that "the actual DPU forecast following the completion of the transactions will be disclosed in the Unitholder Circular which is not available yet. Will this swap agreement be DPU accretive?  It should be since we are seeing a more than doubling of gearing ratio from 15.2% to 39.1% and a boost to K-REIT’s assets to about $3.4 billion from $2.5 billion."

On 18 Oct, K-REIT's management announced that upon the completion of the transactions, the REIT's DPU would increase from 6.06c to 6.68c which represents a 10.2% DPU accretion for 2011. Although this increase is relatively modest given the fact that the REIT's assets would grow 36% because of the transactions, some other benefits of the said transactions could inject more stability into the REIT. A couple of such benefits are its weighted average debt maturity profile extending to approximately 4 years and its weighted average lease to expiry (WALE) extending from 5.7 years as at 30 June 2010 to 7.8 years.

However, as I try to optimise income from my investments, an annualised DPU of 6.68c or a yield of 5.02% based on the last traded price of S$1.33 per unit is not quite as attractive for me.  I have halved my smallish investment in K-REIT and will redeploy the funds.

Related post:
K-REIT: Swap agreement.