The Optimism of Medical Stocks in SGX (Part Two) Singapore O&G

On previous post, I mentioned about how optimistically the market has guided investors on the prospects of medical stocks. Companies which has performed well are usually priced well above their NAV. One of them is Singapore O&G. I shall refer to it as O&G from now.

O&G debutted in the middle of 2015 and have you had the fortitude to hold on during the 2016 correction, it is currently a two-bagger. (Chart from Yahoo Finance)

  Granted, the stock does not pay much dividends. Below, from www.dividends.sg

Amazingly enough, although this stock does not offer much dividends per se, it will be difficult to pay higher dividends in the future. Dividend payout in 2015 was about 62%. It was 72.6% last year. Do not expect this company to be a dividend aristocrat (a fancy term for a dividend machine/stock)...

But I am sure investors are in for the capital gains :)

Above is the latest income statement for FY 2016, it does indicate that profits are up 64.8%, which is a frightening improvement. However, the income statement is one of the more superficial data.
Note that profit margin actually decrease slightly: from 32.5% to 30.7%

The question is, how well is this company performing based on return on capital?

2015- 25.74%
2016- 24.21%

Although ROC did not increase, it is still impressive as it is.

This company does not have any debts. Purist might find the goodwill sizable.

 Of special interest to me is the > 3 x of goodwill accumulated over the course of one year, more than 10 times of inventories, and little change to its cash and equivalents. Without knowing much of the business, one can tell that business was acquired using shares, as its equity based increased from 24m to 41.6m. It has also incurred plenty of payables.

Should one invest in O&G? That, I am not an expert of, since I invest mainly from the balance sheet. One thing for sure, the growth continues. Another year like this, the business would have gone two fold (rule of 72).

Stocks like O&G are what one call growth stock-- it is not the growth of its share price BUT the growth of its business. Share price did move accordingly with growth, and I say it is well-deserved. However, I will abstain from investing because many situation can arise and dampen its share price-- competition, weaker performance, etc. I still think it is prudent to look for downsides first then the upside.


The management of this company will be the key factor on how well this company fare in the future. As of now, it seems to be on a M&A drive, and the increasing share price will make it easier for them to do so. If so, I can expect them to increase dividends so as to entice these subsidiaries. One should pay attention to its cashflow so see it is sustainable. As of now, the story still looks sweet.