The other day, I was sitting alone thinking about how my portfolio has been doing this year and I realised that it has gone absolutely nowhere. By nowhere I mean outperforming the major indices but very little alpha can be found. I am very disappointed in my own performance and it is not possible for me to find any excuses for myself. A classmate of mine who started his own fund management company has logged in gains in excess of 20% while I am stuck at only 12% is making me feel rather envious and also disappointed. To think I never thought much of him when we were young, but talk about late bloomers.
Even though I am once again right that the market would continue moving up while the rest of my colleagues continued their bearishness on equities. I like that because it gives me the reassurance that even the supposed "experts" were skeptical, that means the market is no where close to being bubblish. Slowly but surely some of the deep value stocks are starting to move up.
The likes of Innotek, Sarin, Bright World etc are looking as if activity has picked up. While Genting continues to be on the tear. Genting Berhad has moved to $10 in a matter of 2 weeks, Genting Singapore has gone past my target price and Genting Hong Kong has doubled. Basically, anything that bears the name Genting has appreciated to levels that have not been seen before. I dare anyone who has the guts to go short on these counters at this moment. It would take a very brave man to do so.
Last week, I took a hiatus because I just could not find the time to do any research whatsoever and felt inadequate to comment on anything. I believe going forward when I start my studying, it will be difficult for me to find any time to write. So lets make some hay while the sun shines.
Lets go more in-depth today on what I think is a good industry for shareholders and not for its customers, healthcare. All market experts point to healthcare as the defensive industry to be in. Demand is inelastic, earnings and dividend yields are consistent. Many health care stocks have done well in Singapore over the past year, with Parkway being the highest profiled healthcare company to be involved in an acquisition tussle. Trading at close to 30 times p/e, the price being paid for Parkway is one that seems a little excessive and optimistic at the same time. No doubt, the winner Khazahnah came out owning the numero uno of healthcare companies in Asia and its growth prospects are very promising.
Personally, I like healthcare very much. Why? Firstly, it is not a demand driven business. It is driven by supply. You must be wondering whether I have woken up on the wrong side of bed after a late night of drinks. My question to anyone is, when was the last time you told the doctor what medicine and the amount you needed. The last time I checked, the doctor is the one that tells you how much you need and what you should to take. There are not many of us out there that questions whether the doctors give us unnecessarily expensive medicine or prescribe treatments that are not effective. So doesn't the supplier drive the demand in this case? It is like printing money. I need to clarify here that this is by no means an attack on the morality of the healthcare system, I am just saying that this is a good industry in terms of demand and supply dynamics.
Macro drivers
The number of foreign patients coming to Singapore seeking healthcare services reached 500k last year, that was the highest ever. Although we all know that the govt's target of 1 million foreign patient arrivals by 2012 will not be met but it will probably be achieved by 2015.
Another macro driver for the sector's growth will be population growth. Our population has grown by 120k per year since 2000, driven mainly by "foreign" talents. This will mean demand will only continue growing.
When I was looking across the board for attractive healthcare providers to invest in, one in particular appeared on my screen. It captured my attention because it is one that I seriously doubt I will ever be a patron of the place. *touch wood* This is none other than Thomson Medical. Personally, I am dead against having kids (the worse possible investment a human being can ever have) which I know is one of the more controversial ideas that I have. But that is not the topic of our post today.
I love the idea of others having kids because at least I know that there are people out there who are willing to take up the burden and liability which will be a great comfort for our govt. I will never forget a couple of National Day Rallies ago, where our very own beloved PM Lee gave a speech about how Singaporeans are not having enough kids and that the replacement ratio of couples in Singapore is way below international standards at 1.22 kids per couple. That is worrying. Not that I really care.
With such a low replacement ratio, it is not a surprise that Thomson Medical whose key expertise in women and children, has not been trading at the average price multiples (20-25) for healthcare companies in Singapore. Its growth prospects are truly not as rosy as the other healthcare providers considering so many Singaporeans are not looking to have kids.
Background
Thomson Medical Centre (TMC) is a leading private women and children’s hospital in Singapore. It provides a comprehensive range of facilities and services for primary, secondary and tertiary healthcare, with focus in the areas of Obstetrics and Gynaecology (O&G) and paediatric services.
The 190-bed Thomson Medical Centre along Thomson Road has been in operation since 1979 and offers quality healthcare by a team of highly experienced O&G specialists and pediatricians. It also operates Thomson Fertility Centre, which offers In-Vitro Fertilisation (IVF) programmes to aspiring parents, as well as a chain of seven Thomson Women’s Clinics island-wide. Other subsidiary companies include Thomson Pre-Natal Diagnostic Laboratory, Thomson Aesthetics Centre and Thomson International Health Services.
TMC has also made significant strides with its regional aspirations. Its hospital consultancy project, the 260-bed Hanh Phuc International Women & Children Hospital in Binh Duong Province is scheduled for completion in Q3 2009. In September 2008, the Group secured a second hospital consultancy project in Vietnam -- a proposed private women and children hospital to be sited in Hanoi.
The Group transferred its listing to the Mainboard in December 2007. In recognition of TMC’s best practices in corporate transparency, the Group enjoyed a three-time win in the Most Transparent Company Award category of the SIAS Investors’ Choice Awards from 2006-2008.
For winning the Singapore Promising Brand Award (SPBA) three years in a row, and in recognition of our brand, we were conferred both the prestigious SPBA Silver Award and the SPBA Distinctive Award in 2006.
In 2007, Thomson Medical Centre won the Singapore Prestige Brand Award and was the overall winner of the “Most Established Brand” category. These awards, jointly organized by the Association of Small & Medium Enterprises and Lianhe Zaobao, are indeed testimony to the strong brand performance of Thomson Medical Centre.
With a sterling brand name, dedicated doctors and nurses, and highly personalised service, TMC is poised to continue to be the market leader for woman and child care.
Valuations
TMC has been able to grow their revenues very consistently throughout their time as a listed company. Revenues have grown at a CAGR of 13.3% which is very impressive considering the fact that they are operating in a country with one of the lowest birth rates globally.
Gross margins have hovered at 40 odd percent over the past 5 years. That is something that I love about it. Net margins stand at the late teens. Profit after tax has also grown by more than 20% over the past 5 years. This is by no means a company that has no growth in its business. Look for further growth in its revenue and profitability as their Vietnam operations start.
The company has also indicated that they are looking for further expansion regionally. This bodes well because TMC is very established specialist in their field and their segmentation gives them a unique positioning against their competitors. This is the competitive edge that investors should look for in any company before investing.
Operating cash flow has been very consistent and also growing at the same time. Net cash position on its balance sheet, giving it a strong balance sheet that is ready for further growth opportunities.
In terms of dividends, TMC is paying out more than 50% of their earnings per year. With earnings of 2.43 cents for the first half, it is possible for TMC to generate more than 5 cents in earnings which will translate to a dividend payout of 2.5 cents or more. I fully expect the dividends to rise by 10% or more per year over the next 5 years barring any crisis or need for capital for further expansion.
At this point in time, I do think that the momentum has been strong behind the stock and I would not recommend the point of entry to be at this price. Allow for a pull back before venturing into it. It is one for the longer term and very suitable for investors looking for a combination of consistent dividends and capital growth. Do not expect it to move like a growth stock but it will be a good core stock to have in your portfolio. My target for this stock is $1.20 by mid 2011 based on 20 times 2011 earnings and $1.45 by end 2011.
Anyway, I wanted to write something on Biosensors but DBS has already issued a detailed report on it. That will be a much more speculative play. I remember an analyst told me 5 years ago that Biosensors was going to be a acquisition target and I told him it was too early to tell. However, now I feel it is a lot more likely to be an acquisition target because it has started to reap rewards from its technological edge in drug eluting stents. Keep it on your radar, there is money to be made on a trading basis.
Thats all for this week.
Best,
SVI
Subscribe to:
Post Comments (Atom)
Posts
No comments:
Post a Comment