Oppose the Trend: Healthway Quantitative Summary

Saturday, 30 April 2011

Healthway Quantitative Summary

4 comments:

Musicwhiz said...: Hi!

That's a lot of numbers! Haha. But my question is - any conclusions or deductions on those numbers? What is your opinion on Healthway?

Thanks!; 30 April 2011 at 07:20
OT83 said...: Hi MW,

That's a good question. I was lazy to type out last night when I write this post :)

Valuation:
PE ratio too high, low cash return and earning yield. At current price of 0.13. It is not worth to buy.

Profitability:
Revenue and hence net income drop by approximately 10m due to higher staff cost and expansion in 2010 as compared to 2009 and 2008. In 2009 and 2008, based on consistency of earning, it is worth buying, but it is not in the case of 2010.

If we look at FCF and cash flow generated from operation, it is actually negative although overall there is some net increase in cash/cash equivalents. This cash increase is actually due to loan and share issuing instead of from operation of company. Sooner or later, the company will need to find way to get from financing. In fact, the company doing a 0.075 1 for 8 right issue. This is highly undesirable for shareholders.

If we look even deeper, the number of shares are increasing at an alarming rate, this show that there is something fundamentally wrong with the financing ability of the company.

ROE and ROA is only 1% plus and this imply poor return for shareholders. I am aiming for at least 15%.

% change in account net receivables > % change in gross revenue means company offer looser credit term to attract sales which is not healthy growing sales.

Financial Health:
Current ratio = 1.15
Debt to equity = 0.08
The debt seems okay due to the above ratio. It is not in high debt absolutely. However, if we combine the debt to cashflow portion above, the company might not be able to generate cash/earnings for its debt.

Conclusion:
Low sales results in low net income and hence negative FCF. To ensure expansion and continuity of its working capital, the company will need to find way to source fund which might dilute shareholders' holdings.

Personally, I think the company is over expansion. Unless the company could increase its earning and net income, which might solve all of its current problem, it is not a worthy to buy.

Sadly, I have some shares which I bought during 2010 where I was blindly following someone without analysing its financial health. I am trying to see if I can cut loss at 0.14 (which is quite difficult). Therefore, I am only left with "Hope Analysis".; 30 April 2011 at 11:38
Musicwhiz said...: Ok wow that's very detailed, thanks!

All the best and good luck!; 2 May 2011 at 10:40
OT83 said...: Hi MW,

Thanks!

I really need good luck with my "hope analysis"

Cheers :); 3 May 2011 at 08:10

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