Complete Divestment of Perfect Shape/Medical

I have just divested my entire Perfect Shape/Perfect Medical (PS) holdings today. 

Popular financial blogs usually do a very detailed write up on their equity ideas. Some of them could be very sound, while others opinionated. However, many failed to disclose divestments in an open and timely manner. For some, disclosing a sale could be an embarrassment, such as when an idea failed to work out.

Mine is not one of these blogs. I will try my best to avoid being self-serving and hope to educate my readers (whatever few it might be) on my investment ideas.

***

Let's get the figures out of the way first.

Returns from this investment started in March 2020 and ended today (July 2021). It is nowhere my longest holding, and it wasn't the biggest (at cost). Total returns, with brokerage costs accounted, should be in the region of 230%.

Profits from this stock alone account for 50% of all my returns since 2016. For that I am very grateful.

***

My first investment in PS began in 2018, and the thesis was explained here. It was divested in a matter of months due to problems noticed in receivables. I began buying in 2020, and then gift it to my mum. It was subsequently accumulated as the story get better, and there were no longer any better ideas at that point of time.

Why did the stock increase in such a rapid fashion? It has got to do with a management that is (I feel) overly involved in cheering up its stock prices, usually through operational updates that started after the first wave of COVID-19 control is loosen.

It began with better and better sales figures and then subsequently towards diversification of health services, which leads to it renaming itself to Perfect Medical to better reflect the diverse offerings (which are in the works for the future).

During the outbreak of COVID-19, the stock went from 2.0 to as high as 10. I was holding out since March 2021 for its financial results to be disclosed, which explained my patience of not selling all of my holdings since it returned me 100%.

While the stock has went up as much as 400%, the earnings did not follow suit. The good news was that its China operations did spruce up 24%. There is a slightly higher dividend compared to the last, where no interim dividend was distributed so as to conserve cash for expansion.

What caught my eye was a huge increase in about 200m of investment securities into its non-current assets I have no idea what the holdings are. A slight majority of them belong to listed equities within the HKEX. I have some idea what its 30m or so holdings in USA are, as they were disclosed in earlier reports.

The 2nd half of 2021 did better than 2020's. The 2nd half seems to be the poorer performing period for PS.

Overall, the results look lacklustre compared to the amount of bright and cheery disclosures since then.

***

As the day begins, the stock open at 9.2, which is a minor 2% drop from the previous close. But the plunge was fast and furious. 

It fell to a day low of 7.87, which is probably down 16% from previous day.

One of the things I taught about selling when you are undecided is: if your spouse had accidentally sold a stock (that you are sitting on the fence about), would be be a) furious and bought it back OR b) be fine with it?

If you were feeling (b), you probably should sell the stock. I felt so two days ago, and I feel even more so as the stock goes on a free fall. I was ... frightened. The negative feelings I had for the cheerleading management intensifies. They even had an announcement, which I felt was too coincidental, about its unaudited operational updates in Q1.

Before noon, I have sold my parent's share to lock in the gains. 

Say anything you would against fund managers-- while we retailers could beat their performance pretty easily (due to a lot of factors), the ones managing funds deserve some respect when they act in a fiduciary manner. 

I input my final lot of holdings into the sell queue and went for lunch. At that price, I didn't think it would get filled. But it did. As I type this entry, I realized that the company has bought back another 1 million of shares between the price of 8.1-8.7. I sold my last stock at 8.7.

***

At a market capitalisation of 10.68B, Perfect Medical has about 500m of free cash flow, along with a cash hoard of 490m, along with 309m investment securities. Assuming a 20% mark down (since markets are so favourable now) in the latter, that would be about 250m. That brings down the market cap to just under 10B.

A free cash flow of 500m is about 20 times. It was a bargain back then... but right now, it isn't cheap, and it isn't dear. But something within me says that all is not well with the cheerleader-like management. I could be right or wrong in equal parts.

***

This concludes my farewell letter to the stock that has rewarded me the most, ever. TBH, I was going through some of my older entries and they brought a smile to my face. I know I would be looking back at this one day, and hope I learn important lessons about investing.

Certain things can only be learnt from experience.