Nursing home operator Econ Healthcare (Asia) has sold all its shares in Crosstec Group Holdings, and will book a loss on investment of $3.4 million, turning what was initially a paper gain into a loss-making venture.
The loss is equivalent to 9.1% of Econ Healthcare's net tangible asset as of Sept 30 2021.
Econ Healthcare over the last weekend announced that it had spent some $4 million to buy 11.8 million shares of the Hong Kong interior designer, paying the equivalent of 29.26 cents and 40.04 cents each.
According to Econ Healthcare, it observed that Crosstec shares have been steadily rising. As recent as Nov 16, it was just at 40 HK cents, and hit a recent high of HK$2.65 on Jan 6.
Econ Healthcare believes it could thus make better returns from its idle cash by investing in Crosstec shares, which reported a loss for its FY ended June 2021.
However, on Jan 11, Crosstec’s share price plunged by 84%, and earlier today on Jan 12, it dropped by another 28.95% to close at 27 HK cents.
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As such, Econ Healthcare suffered a downgrade by DBS analyst Paul Yong, who, in his Jan 12 note, cut his call on the stock from “buy” to “hold” and target price from 40 cents to 28 cents.
“While the losses could be recouped, we believe Econ’s investment mandate and strategy should be tightened significantly,” writes Yong in his Jan 12 note.
In a Jan 12 filing to the stock exchange, Econ Healthcare's directors are not aware of what caused the plunge of Crosstec's share price, adding that Crosstec's own board, in its respective announcement in Hong Kong, isn't aware of what caused the "unusual price movement".
Ong Chu Poh, Econ Healthcare’s executive chairman and group CEO, says that selling Crosstec shares would help the company keep its focus on growing its core business.
The plunge in Crosstec’s share price has no “operational impact” on Econ Healthcare’s business, he adds.
“The group will be reviewing its investment strategy to align with its focus on growing its core business and maximising returns for shareholders,” states the company on Jan 12.
Econ Healthcare closed on Jan 12 at 28 cents, down 3.45%.
