HC Surgical

Endoscopy specialist, HC Surgical Specialists' (HCSS) 1HFY17 net profit slumped 91.8% to $0.1m, hurt by listing expenses of $1.3m. Excluding one-offs, earnings would have been relatively stable at $1.5m (+0.9%).

Revenue grew 11.1% to $4.3m as it welcomed contributions from 51%-owned Lai Bec (Mt Elizabeth Medical Centre clinic) and wholly owned CTK Tan Surgery (clinics at both Mount Elizabeth Novena and Gleneagles Hospital).

Bottomline was further dampened by higher staff costs of $1.3m (+76.6%) on increased headcount from the new subsidiaries as well as interest expense of $0.3m (+370.8%), related to its redeemable convertible loans, which has since been converted to shares prior to its IPO.

HCSS's balance sheet continues to remain robust with net cash of $13.4m or $0.092/share and no debt. Meanwhile operating cash flow strengthened during the period to $0.9m (+62.2%) albeit from a low base.

Interestingly, the group announced its maiden interim DPS of 1.8¢ which translates to about $2.6m, or >70% more than its underlying 1HFY17 net profit. The group had guided that it intends to distribute 70% of its FY17 net profit to shareholders.

The distribution translates to 2.9% yield at current prices versus peers' 1.4-4.4%. .

While the group expects operating conditions to be challenging in light of the gloomy economic climate, it intends to continue expanding and improving operating efficiencies to contain costs.

Separately, the group announced a $0.8m investment for a 40% stake in a JVCo with Iridium Investment Management (40%) and JILB International (20%). The JVCo will be focused on operating and expanding additional clinics in the heartlands as well as develop and grow the range of medical services provided by HCSS.

Moving forward, the JV partners also intend to increase their investment in the JVCo by up to $3m at a later stage.

HCSS is currently trading at a relatively undemanding 22.4x trailing P/E versus industry average of 35-55x.