Sunday, 22 January 2017

Recent Investment/ Portfolio Update - ISEC Healthcare

(image credits: ISEC Healthcare)

It's been awhile since I have updated my blog, and I am very pleased that I do have an update now! I have bought 13000 Shares in ISEC Healthcare with an  average price of $0.285. You may like to note that current price levels are very near to their IPO price of $0.280, and I have been monitoring this counter for a few months awaiting a drop to favourable levels whereby it has now arrived at. 

For those of you who are unfamiliar with this counter, this company provides medical services, and its' main focus is on opthalmology (eye medical care services). It currently has operations in Malaysia (KL, Penang), and Singapore.

Expansion & Synergies

ISEC has seen some issues recently in the past and previous year, with its Novena eye center clocking a lost for the group totalling $2.6M, due to both losses and closure related activities. (PS. It has closed down due to failure to renegotiate wages with the 3 doctors working at the center) However, the board has hinted that business opportunities remain strong, both locally and abroad (Malaysia and Vietnam, and the Asia Pacific region in general).

True enough, under a year ago, they have acquired shares in Southern Specialist Eye Centre in Malaysia, and most recently, the acquiring of 4 General Practice Clinics in Singapore. Although their expansion plans in Vietnam have not materialised, I believe that it is only a matter of time. There is potential for GP-Opthalmology referrals and for GP follow-ups as well. Although this is not definite but there is a decent likelihood. There would also likely be cost savings along with expansion; due to synergies and economies of scale (which applies to most businesses including ISEC) - better negotiating power for medical equipment, more efficient managing of facilities, staff-sharing between centers; to name a few.

Population Tailwinds

Everyone has probably heard of the ageing population argument for healthcare (ie. average population age increasing = more demand for healthcare in general) already so I would not repeat that here. But instead let me give a tiny snapshot about why opthalmology as a specialty is particularly important or potentially lucrative in a few short dot-points;

1. LASIK is gaining popularity, an increasing amount of Singapore and the world's population is experiencing short-sightedness (largely due to technology's contribution)
2. Cataracts and Glaucoma are very common eye problem requiring urgent treatment
3. Singapore (which is a main source of revenue for ISEC), has the 2nd largest proportion of diabetics amongst developed nations. Diabetes has also been on an uptrend in other countries including Malaysia the other main source of revenue for ISEC (also note that Malaysia has a greater prevalence of diabetes than the world population (about 8% higher)).
4. Diabetes has many microvascular and macrovascular complications. Amongst the former, eye complications are one of the first signs of manifestations and require urgent treatment
5. Of which, Cataracts, Glaucoma and Retinopathy (damage of blood vessels of the retina) are common complications

There are of course many other arguments (e.g. ozone depletion -> increasing UV exposure -> increase risk of cataracts and other eye conditions) that would go the same way, however I will not be going into them as the purpose of this piece is just to give ourselves a snapshot of the big picture.

I believe that the main take away point is that eye conditions are getting increasingly more common locally and abroad. Furthermore, eye conditions are arguably less insidious than other medical conditions, as their manifestations appear quickly and bring about severe changes to the standard of living of patients', leading to patients being more likely/receptive to receiving medical treatment for their eye (and being more than willing to pay for it) as compared to other specialties.


(Image Credits: Singapore Exchange Ltd)

As you can see revenue and gross profit as well as dividends per share have been on a steady rise, which is all good. Current P/E is also at 26.9 which is high, but then again relatively low to the other listed healthcare providers. 

ROE currently sits at 10.4 which is not fantastic but not terrible either, as compared to the other years since listing, and there are signs that their returns are increasing, perhaps due to their expansion from the utilisation of free cash flow and IPO proceeds. On that note, they also have $26.9M in cash and equivalents and no debt as well, giving them sufficient room to acquire other practices when they deem fit. 

In summary, there are a number of things I like about this counter and I have hopes that they are back on track onto achieving success. For now I'll just be sitting back, collecting dividends, and monitoring their progress. This is probably a counter I will be holding for the long term.

I hope you have enjoyed reading my 2 cents!

A 😁

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