HC Surgical Specialists is a a medical services group primarily focusing on endoscopic procedures through a network of 12 clinics in Singapore. These clinics are distributed across heartlands and also in major private hospitals. In addition, the company has entered into a MOU with an independent party to provide training and consultancy at Transport Hospital in Vietnam. Their specialist surgeons will be registered to practice at the hospital and help set up a day surgery and endoscopy centre, thereby securing the exclusive rights to perform surgical and endoscopic procedures for a period of time.
Rational for Purchase
Bought this stock hastily on 6 Jan 2017 to take advantage of the $0.018 declared dividend. At my purchase price of $0.625, it is a 2.88% dividend yield - good for a growth and healthcare stock. I had only analyzed this stock retrospectively (flouting the rules, need to reflect on myself). Besides the attractive dividend for a healthcare stock, this stock caught my attention due to its similarity to another successful IPO by Singapore O&G, attaining multi-bagger returns.
- Both are companies related to healthcare, though Singapore O&G focuses another field
- Both had IPO price in the $0.20-$0.30 range
- Both trading at P/E in excess of 30
- Both declares dividend
- Singapore O&G traded in the $0.60 range when it first debut
With these similarities, I am hoping HC Surgical Specialist will replicate the price trajectory as well.
On a more fundamental basis, HC Surgical is good due to the following reasons.
- Singapore is an ageing society, with more need for healthcare
- Specialist medical services
- Entry into Vietnam with clear business outlook
This is a superficial comparison that I should be ashamed of, but since my Buy Order was unexpectedly triggered, why not I publish this here as a record.
Financial Performance
I had briefly looked through the half year financial statement before the purchase. With a quick peek, I gulped at the bottom line, with a 98.5% drop. I knew there was an IPO expense but did not have the time to add it back to compare. Now that it is the weekend, let's sit down and go through the numbers.
IPO expense was $1.258M. Adding it back to profit before income tax, it comes up to $1.357M - still 15% lower than the previous year. I factored in an increase tax expense to reach end profit of $1.357M. With outstanding shares post-IPO of 146,311,530. The EPS comes up to $0.0075 for the half year ended 30 Nov 2016.
Assuming consistent earning at the second half, the P/E at $0.625 is a whopping 42 - really going against my usual theme of value investing.
The declared dividend policy is to pay out 70% of its profit. With my estimated EPS of $0.015, the dividend payout is nearly 120% of profit. So this $0.018 dividend essentially has some parts coming out of the IPO proceed and I should not expect this rich a dividend in the future.
Maybe I have been pessimistic since finance costs will likely go down in subsequent quarters. New subsidiaries will boost earnings (with a chance expenses outpace it) and entry into Vietnam presents growth. But overall, I had find my purchase rather risky and not entirely based on fundamentals. Rather, it is speculative based on my comparison to Singapore O&G. In addition, HC Surgical had declared that "operating environment of the medical industry to remain challenging in the next 12 months..."
However, a buy is a buy and I will like to see this stock still emulating the trend of Singapore O&G for a better Goat Year!
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