SINGAPORE (June 24): HC Surgical Specialists was listed in 2016 at 27 cents; the stock remains significantly above its IPO price, as it last traded at 56 cents. However, that is more than 6% lower than at the beginning of this year, and around 16% lower y-o-y. For retail investors, the low liquidity is an added problem.
HC Surgical provides endoscopic procedures, including gastroscopies and colonoscopies, and general surgery services, with a focus on colorectal procedures, at its 16 clinics in Singapore.
In recent weeks, the medical services company made a number of announcements. On June 6, it said it had acquired a 25% stake in Medistar Services, a private company. Medistar operates a general practitioner clinic, The Ming Clinic, at Camden Medical Centre. Separately, HC Surgical (80% stake) and Medistar (20%) have formed a subsidiary, HC Ming, which will set up an endoscopy centre within The Ming Clinic, bringing the group’s network of endoscopy centres to 10.
In May, HC Surgical and its 22.92%- -owned associate, Catalist-listed Medinex, granted Nuffied Dental Holdings a three-year redeemable convertible loan of $2.25 million. Nuffield runs a laboratory and has a chain of nine dental clinics in Singapore. The RCL bears an interest rate of 5% a year, paid semi-annually. It is secured by a personal guarantee from the founder and main shareholder of Nuffield, Dr Samintharaj Kumar. All the shares in Nuffield are owned by him and his wife. HC Surgical and Medinex have the right to obtain a fixed and floating charge over Nuffield’s fixed assets at any time during the agreement.
John Tan, non-executive chairman of Medinex, says: “We [want] a minimum return on investment [ROI] of 15% a year, and our investments are structured in such a way that we can get this.” He is looking at the possibility of an IPO of Nuffield when the RCL matures in 2022.
HC Surgical acquired a 49% stake in Medinex in 2017 for $4.316 million, paid for with a combination of shares and cash. The purchase price was based on a 13.7% yearly ROI based on $4.316 million, and a profit guarantee of $2.94 million for 4½ years.
Medinex was listed in 2018 at 25 cents a share. According to Tan, the key risks for shareholders of HC Surgical are revenue and key man risks. Dr Heah Sieu Min is CEO of HC Surgical. He is also a major shareholder and the main generator of revenue. “Dr Heah will have to acquire more specialists to diversify the risk and manage the key man risk,” Tan says. “The other part is revenue risk: HC Surgical needs to acquire stable clinics to diversify. The stake in Medinex diversifies this risk. The company now has an ecosystem to reduce dependency on the key man risk.”
HC Surgical announced a profit of $7.5 million for 9MFY2019 ended Feb 28, 85.9% higher y-o-y. Of the $7.5 million, $2.87 million was a fair-value gain on financial assets. Operating net profit was $4.63 million. This in turn translates into annualised net profit of $6.17 million, or earnings per share of 4.1 cents. FY2018’s net profit was $4.46 million, with EPS of 2.99 cents. Free cash flow for 9MFY2019 was also strong, at $3.5 million.
For FY2018, HC Surgical paid an interim dividend of 1.1 cents and a final dividend of one cent. The total dividends of 2.1 cents represented around 70.2% of FY2018’s EPS of 2.99 cents, based on a dividend payout ratio of 70%. “In our IPO document, we mentioned that we would declare up to 70% payout of operational profit; this is the third year after IPO, so the payout will be based on cash flow,” Tan says.
