Growing Old, The Insider Story

Every year, one more candle appears on the birthday cake. We celebrate the day we were born with cakes, songs and presents. Few would realise that each passing birthday means we are closer to growing old.

The greying population offers attractive prospects for businesses. With an ageing population, demand for medical and healthcare services would grow. When age catches up with you, your doctor makes more money as you age. Companies that makes health related products or owns hospitals / clinics do good business.

We shall take a closer look at 3 companies that are in the medical and healthcare industry by analysing the recent insider trades.

Raffles Medical (R01)

Source: ShareInvestor.com

Source: ShareInvestor.com

Raffles Medical owns a private hospital and a chain of clinics in Singapore. Being private means the specialists’ consultation is expensive. This means you get what you pay for – good medical service.

FMR LLC emerged as a substantial shareholder on 27 April 2011 with a 5.05% stake. This means FMR owns a lot of Raffles Medical shares.

FMR or Fidelity Investments is an American multinational financial services corporation. This means FMR hires an army of highly educated people trained in investment. FMR is funded with bags of money from rich people all around the world. Their job is to pick stocks to buy to make the rich people richer.

If you had followed FMR on 5th May 2011 and bought into Raffles Medical at S$2.29, 1 day after FMR made the announcement it became a substantial shareholder, you would have had made S$0.07 based on the closing price of S$2.36 on 2nd March 2012 or a 3% return in less than a year. Including the S$0.035 dividend paid out during the holding period, you would have made a total of S$0.105 or a 4.6% return.

FMR increased its stake on 13th February 2012 with a 6.01% stake. FMR already owns a huge chunk of the stock. Why is it buying more?

If you had followed FMR on 23rd February 2012 and bought into Raffles Medical at S$2.38, 1 day after FMR made the announcement it increased its stake, you would had had lost S$0.02 based on the closing price of S$2.36 on 2nd March 2012 or a 0.8% loss in less than 2 weeks.

FMR probably brought most of the Raffles Medical shares it owns at a lower cost. It is adding to its position because Raffles Medical’s FY2011 earnings were up 11% a year ago when it brought its 5.05% stake. This means its army of people trained in investment were right, Raffles Medical made more money.

Will FMR be right again next year? Only time will tell.

LMA (L24)

Source: ShareInvestor.com

Source: ShareInvestor.com

LMA makes airway masks that aid patients in breathing when doctors try to save their lives. The problem with LMA’s business is that other companies try to imitate its product giving rise to cheaper alternatives available in the market.

You don’t see funds like FMR hanging around buying into the company probably because medical devices company spend a lot of money on research and development and fighting lawsuits to protect their patents on their products. Once in a while it may come out with a blockbuster product, but the wait may be long and patience is needed.

LMA certainly don’t think so. The company has been buying back its own shares since the year 2007 according to our records at ShareInvestor.com.  If you didn’t know what business LMA was in and looked at its share-buyback records, you would have thought LMA’s core business was buying back its own shares.

The recent buybacks in year 2012 were done around the price of S$0.355-S$0.425. LMA’s current share price is S$0.425. Looks like LMA was right about its share-buyback. Its average cost of buying back its own shares is less than S$0.425 and its share buybacks in the year 2012 are currently in-the-money.

If you look at LMA’s earnings for the past 4 years, it has been stagnant for 3 years and has improved by 40% in FY2011. LMA was right about itself. LMA made more money as it has predicted.

Will LMA be right again next year? That will depend whether LMA make more money next year as it has predicted previously.

Healthway (5NG)

Source: ShareInvestor.com

Source: ShareInvestor.com

Healthway runs private clinics all over Singapore. You go to them when you catch a cold or have a fever. It is not difficult to set up a general practice clinic in Singapore when you have a medical degree and a buddy you met in medical school, you can rent a unit and start a 24-hour clinic. You find clusters of them in the housing estates. Competition is tough. Barrier to entry is low.

On 2nd June 2010, Peter Lim Eng Hock aka Singapore’s remisier king became a substantial shareholder with a 5.75% stake. He probably bought into the business thinking running a huge network of clinics was extremely profitable. He increased his stake twice until it hit 7.21% on 10th June 2010.

Suddenly, on 14th October 2010, Peter Lim cut his stake to 4.85%. Judging from the market price of Healthway when he bought and sold his stake, he didn’t exit his position for profit because the price level was almost the same.

On 31st March 2011, Healthway announced a rights issue asking shareholders for capital.

Does the remisier king still own Healthway shares? If you take a look at page 92 of Healthway’s 2010 Annual Report, you will find the answer. 

Insider Trades on ShareInvestor.com

ShareInvestor.com provides a list of insider trades via this link for subscribers. Below is a screenshot of the list of trades.

Source: ShareInvestor.com