ISEC Healthcare Ltd (SGX: 40T) is a provider of specialist medical ophthalmology, general family medicine, and aesthetics services. At ISEC’s current share price of S$0.35, it has a dividend yield of 4.5% (excluding any special dividend) and a price-to-earnings (P/E) ratio of 21.
Given its higher yield than the Singapore stock market in general, is it worth investing in this growth stock? Let’s find out.
The following is a snapshot of ISEC’s investor presentation, which shows the company’s competitive strengths.Source: ISEC Healthcare Ltd corporate presentation
ISEC has listed six of its strengths, of which the asset-light model and the growth in the sector in which it operates are attractive to me.
The company leases its operating premises and some of its medical equipment, which are also shared among its team of doctors. This operating model allows ISEC to keep its capital expenditure low, allowing it to generate plenty of free cash flow to use for business expansion and dividend payments.
The rising middle class and disposable income in the region should also bode well for the company. ISEC has identified China, Indonesia, Myanmar, and Vietnam as growth markets.
Show me the money
ISEC has grown its revenue from S$22 million in 2014 to S$40.4 million in 2018, giving it an annualised growth rate of 16.4%. Its earnings have climbed even faster, at 43% per year, from S$2.0 million to S$8.4 million during the same period.Source: ISEC Healthcare Ltd 2018 annual report
Free cash flow has also grown strongly, up from S$0.2 million in 2014 to S$9.6 million in 2018. That spectacular growth shows the strength of the company’s asset-light model.
ISEC’s balance sheet is healthy as well. As of 31 March 2019, it had S$28.6 million in cash and cash equivalents with no debt.
The eyecare specialist has lots of growth potential. In its 2018 fourth-quarter earnings release, Dr Wong Jun Shyan, ISEC’s executive director and chief executive, commented:
“Looking ahead to the next 12 months, we believe the region’s ageing population as well as increasing awareness about the benefits of seeking early treatment for ophthalmology issues will continue to drive demand for the specialised services that we provide. We will continue to search for investment opportunities to strengthen our presence in our existing markets and to explore new markets such as China, Indonesia, Myanmar and Vietnam.”
ISEC has already ventured into Myanmar through the incorporation of ISEC Myanmar Company Limited. The new business will “operate and administer ophthalmology centres and provide medical consultations and services in Myanmar and is expected to commence operations in the second quarter of 2019.”
The Foolish takeaway
ISEC is certainly worth a second look with its high free-cash-flow generation, rock-solid balance sheet, and strong growth potential in the region. If the company can deliver on its growth plans, the dividend yield of 4.5% and P/E ratio of 21 certainly look attractive.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.