The potential superstock of the week is ISEC Healthcare Ltd (SGX: 40T). ISEC  is an established regional provider of a comprehensive suite ...

Weekly Superstock Scan 5 Jun - 9 Jun 2017: ISEC Healthcare Ltd (Singapore)

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The potential superstock of the week is ISEC Healthcare Ltd (SGX: 40T). ISEC  is an established regional provider of a comprehensive suite of medical eye care services with ambulatory surgical centres. In 2016, the Group expanded its healthcare services to include general medical services and aesthetic treatment services. 





As at 31 December 2016, it has 4 eye care centres (3 in Malaysia and 1 in Singapore), and 4 general practitioner clinics in Singapore.

Technical


ISEC has been trading in a tight range between S$0.28 to S$0.32 since September last year. Since March this year, the volatility of the stock has been increasing quite a bit with occasional spike in volume. 

This week, price moved up from $0.335 to $0.345, following a bigger move the week before. The volume this week was much bigger though with 2.4 million shares traded, approximately 3 times its average weekly trading volume.

There was no earnings released or press release, so I am unsure of the cause of the volume spike.

Fundamental



Based on my Shareinvestor data, ISEC had a fall in year on year EPS in the recent quarter. Upon closer inspection of the quarterly report, the fall was merely because a weighted average number of shares in the financial year was used to compute the EPS. Since the stock number of shares was the same in both period and net income increased, EPS actually should have increased year on year for the last quarter. If that was the case, ISEC would have reported 7 consecutive quarters of EPS growth. In order words, EPS has been growing since its IPO in 2014.

Expanding into General Medical and Aesthetic Treatment Services

In December 2016, the Group expanded its healthcare services to include general medical services and aesthetic treatment services, with the acquisition of JLM Companies  comprising four clinics located in the heartlands of Singapore.

In 1Q2017, these four clinics contributed S$1.02 million out of S$8.46 to the group's revenue.

The clinics are complementary to ISEC's operations. The acquisition will allow ISEC to expand their ophthalmology services into heartland areas. This will expand their patient base and increase the visibility of the ISEC brand name in the heartlands.

For the clinics, ISEC and potentially offer aesthetic treatment by providing oculoplastic and cosmetic eyelid services.

Regional Expansion

ISEC has identified Vietnam, China, Indonesia and Myanmar as markets with high growth potential mainly because of their large population. ISEC intends to strengthen its brand and expand market share in new locations through accretive acquisitions, joint ventures or setting up of new subsidiaries.

Conservative Management

One thing I like about the company is its conservative management. This was the impression the company gave me as its past actions suggested that ISEC is quick to cut loss and keen on immediately accretive deals.

One year after its listing, ISEC closed down its Eye Clinic in Mount Elizabeth Novena Specialist Centre after two years of loss making.

Separately, ISEC signed two MOU for a joint venture in Vietnam but allowed both to lapse despite ISEC seeing long-term potential in Vietnam.

Matrices
- High P/E - With a trailing twelve month EPS of $0.013, at the current price of $0.345, it is trading at a ttm P/E of 26.6. It is on the high side but is comparable to other healthcare companies in Singapore.
- High Float - ISEC has a large float of 150 million shares. Its average daily trading volume is just 260 thousand shares. It will take something really big to move this stock.

Risk Factors/ Things I do not like


  • Currency Risk: ISEC derived most of its revenue from Malaysia, and the depreciation of the Ringgit will have an adverse effect on ISEC's financials.
  • Lack of Liquidity: I was contemplating real hard today whether to consider ISEC as a potential superstock. It did pass one of my screen of having an average trading volume of more than 100k shares, but on some days, the volume can be as low as 20k to 30k shares, which mean I may have problem buying or selling the stock.




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