Background: China Healthcare Limited (CHL) owns and manages eight medicare centres and nursing homes in Singapore and one in Malaysia, under the “ECON Healthcare” brand. It also owns West Point Hospital (WPH), the only private licensed hospital in Singapore to provide acute and convalescent care in a 24‐hour setting.
Recent development: CHL recently announced a joint venture with Sweden’s SCA Group, a hygiene products supplier, to provide dedicated home‐care services to the elderly in China. Locally, its new medicare centre in Yio Chu Kang began operations in June this year, which would contribute positively to its FY Mar12 results.
Key ratios…
Price‐to‐earnings: 17.1x
Price‐to‐NTA: 2.0x
Dividend per share/yield: Nil
Net cash/(debt) per share: (S$0.038)
Net gearing: 30.4%
Share price S$0.25
Issued shares (m) 287.218
Market cap (S$m) 71.80
Free float (%) 28%
Recent fundraising activities Oct 2010: Rights issue of 57.4m, rights shares @ $0.125 on 1:4 basis
Financial YE 31 Mar
Major shareholders Founder Mr Ong & spouse (49.1%), Sam Goi Seng Hui (23.1%)
YTD change +56.3%
52‐wk price range S$0.125‐0.260
Our view
Not an S‐chip. Not to be mistaken for an S‐chip by its name, CHL is a Singapore‐grown company with 24 years of experience in the healthcare business. It changed its name from ECON Healthcare to the current one to reflect its focus on growing its business in China.
Targeting China’s elderly market. CHL currently has two consultancy and management projects for retirement villages in Tianjin and Suzhou, as well as a 35% stake in a hospital equipment manufacturer in China. A previous investment in a Health Park has resulted in an impairment of $9.2m in FY Mar10. The scale of its China business in terms of profit contribution remains small but it is in a unique market with huge potential. China has the highest elderly population in the world at about 200m.
Expansion plans to drive topline growth. CHL is transforming the existing 58‐bedded WPH into a 100‐bedded facility and also adding new medical facilities to it. In Malaysia, it is building a new 200‐bed Medicare Centre in Taman Perling. These expansion plans should continue to drive its topline growth.
Valuation not cheap, but upside exists. CHL has managed double‐digit topline growth for the past five years. At historical PER valuation of 17.1x FY Mar11 earnings, valuation does not look cheap. However, with the low base earnings, potential growth after the expansion plans and further headway in China could be positive earnings drivers and catalysts.
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