Latest / Investor Exchange / ISEC Healthcare Q1 2025 Results

Transcript

ISEC Healthcare Q1 2025 Results · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  We often see those big company headlines, don't we? You know,
• 0:11
  profits are up or there's some exciting new project.
• 0:14
  But to really get a handle on a company's health, where it's really at,
• 0:18
  you need to look under the hood.
• 0:20
  Exactly. You have to get past the surface noise. And that's what we're doing
• 0:23
  today with ISEC Healthcare LTD.
• 0:25
  We're taking a deep dive into their first quarter results for 2025.
• 0:28
  That's right. We've got the key documents here. The statement of profit or loss,
• 0:33
  which is basically their income and expenses for the quarter. OK.
• 0:37
  Then the statement of financial position. That's a snapshot of their assets
• 0:40
  and liabilities, what they own and owe at March 31st. Right. The balance sheet.
• 0:44
  Precisely. And also the statement of cash flow is super important,
• 0:47
  shows how cash actually moved around, plus the changes in equity statement.
• 0:51
  And we have the numbers from Q1 last year, 2024, and the end of 2024 to compare.
• 0:56
  Which is really helpful.
• 0:58
  So our mission today really is to figure out how IECC Healthcare did recently.
• 1:02
  Was it good, bad, maybe a bit of both?
• 1:05
  And crucially, why? What drove those numbers and what does it suggest about
• 1:09
  their outlook? Let's jump in.
• 1:11
  Okay, so first up, revenue.
• 1:14
  Looks like it increased by 6% compared to Q1 last year. Went from about $16.9
• 1:19
  million to $17.86 million.
• 1:22
  What's behind that rise? Well, the report is pretty clear on this.
• 1:26
  The main boost, about $0.93 million of that increase, came specifically from
• 1:32
  their specialized health services.
• 1:34
  And they attribute that directly to, one, just more business activity overall,
• 1:38
  and two, crucially, having more eye centers up and running in Malaysia.
• 1:42
  Okay. So that expansion strategy in Malaysia we've heard about is actually starting
• 1:46
  to show up in the top line numbers. More centers, more revenue. Makes sense.
• 1:49
  It certainly seems to be paying off in terms of bringing more money in.
• 1:52
  Yes. Now, what about the cost side? You know, the cost of actually providing
• 1:55
  those services, that go up to?
• 1:57
  It did. Yes. Their cost of sales also rose by 6 percent from $9.25 million to $9.77 million.
• 2:04
  OK, so that's pretty much in line with the revenue increase.
• 2:07
  Exactly. It suggests they're managing those direct costs proportionally as they grow.
• 2:12
  And because of that, their gross profit, the money left after direct costs,
• 2:17
  also went up by that same 6%, from $7.66 million to $8.08 million.
• 2:23
  And the gross profit margin, did that hold steady? It did.
• 2:26
  Stayed right at 45.3%. That consistency is, well, it's a pretty good indicator.
• 2:31
  It suggests they've either got decent pricing power or they're keeping a tight
• 2:35
  rein on those direct costs, even with more activity.
• 2:38
  Maintaining margins while growing is definitely something you like to see.
• 2:41
  When we look further down the income statement, the profit after tax actually
• 2:45
  dipped a little, didn't it? Down 3%. That's right.
• 2:47
  It went from $3.18 million in Q1 2024 down to $3.08 million this quarter.
• 2:53
  So more money coming in the door, but slightly less ending up as profit at the
• 2:57
  very bottom line. What's squeezing that profit? That's the key question, isn't it?
• 3:01
  Revenue's up, gross profit's up, but net profit is slightly down.
• 3:05
  The main culprit highlighted in the report is a jump in administrative expenses.
• 3:10
  The overheads. Yes. These rose by about $0.72 million.
• 3:14
  So while the direct costs scaled with revenue, these general operating costs grew faster.
• 3:20
  OK, let's unpack those admin costs then. Where did that extra $720,000 go?
• 3:24
  Well, a fair chunk of it, about $0.37 million, is directly tied back to those
• 3:29
  new and expanded Malaysian eye centers we just talked about.
• 3:32
  Right. Setting up new places costs money.
• 3:34
  Staff, rent, utility. Exactly. All those set up and running costs.
• 3:39
  And then on top of that, there was another 0.1 million dollar increase in staff
• 3:43
  related costs. But this was in their other centers.
• 3:45
  They attribute this to just handling the overall increase in business.
• 3:49
  So it really looks like the cost of growth, both setting up new capacity and
• 3:53
  handling more volume in existing places, is hitting the admin line right now.
• 3:57
  It's an investment, but it has that short term impact.
• 4:00
  Precisely. It's the cost associated with their expansion strategy and just being
• 4:04
  busier overall. Were there any cost savings anywhere else to maybe soften that
• 4:08
  blow a little? There was a small offset, yes.
• 4:10
  Other expenses actually decreased by $0.13 million.
• 4:14
  The main reason given is lower amortization expense on intangible assets.
• 4:18
  Okay, remind us what amortization is again. Think of it like depreciation,
• 4:22
  but for non-physical things like, say, the value of a long-term contract or
• 4:26
  made a brand recognition, you spread the cost over its useful life.
• 4:31
  In this case, it seems a specific contractual relationship was fully paid off
• 4:35
  or amortized back in 2024.
• 4:37
  So that expense just stopped this year. Correct. So that specific expense is
• 4:41
  gone now, leading to the decrease.
• 4:44
  OK, so revenue up, admin costs up more significantly, partially offset by that amortization saving.
• 4:50
  It all kind of leads to that slight dip in profit before tax,
• 4:54
  which is also down about 3%. That's the picture, yeah.
• 4:56
  The expansion costs are definitely weighing on the pre-tax profit right now.
• 5:00
  Although, looking here, other income actually jumped quite a bit, up 68%. Good spot.
• 5:06
  Yes, it went from $0.11 million to $0.19 million.
• 5:10
  Not a huge amount in the grand scheme, but a significant percentage increase.
• 5:13
  And it includes things like government grants, which increased from $21,000 to $37,000.
• 5:19
  Every little bit helps, I suppose. That's true. And what about finance costs?
• 5:22
  Borrowing money, leases, that sort of thing? Those were up slightly by 10% from
• 5:27
  $0.15 million to $0.16 million.
• 5:31
  If you look inside that number, interest on their lease liabilities actually
• 5:36
  went up a bit, maybe reflecting new leases for the expansion.
• 5:39
  But interest on their actual loans went down. And there's a new item this quarter,
• 5:43
  $22,000 in interest expense on advances from what they call non-controlling interests. Meaning?
• 5:49
  Essentially paying interest on funds provided by minority partners in some of
• 5:54
  their subsidiary businesses. That wasn't there last year. Okay.
• 5:57
  And just quickly, depreciation and amortization. We touched on amortization
• 6:01
  going down. What about appreciation on their physical stuff? Right.
• 6:04
  So depreciation on property, plant, and equipment, and also on their right of
• 6:08
  use assets, which are often linked to leases, that actually saw significant increases.
• 6:13
  Ah, reflecting the new buildings and equipment, presumably. Exactly.
• 6:17
  Shows up in both cost of sales and admin expenses. So you see this contrast.
• 6:21
  Depreciation is up because they have more physical assets, especially new ones.
• 6:24
  But that specific intangible amortization went down.
• 6:28
  OK, that gives us a really good feel for the profit and loss statement.
• 6:31
  Let's switch gears now to the balance sheet of the statement of financial position.
• 6:34
  What major changes happened between the end of December 2024 and the end of March 2025?
• 6:41
  Well, overall, total assets barely moved, just a tiny dip from $119.05 million to $118.95 million.
• 6:50
  So pretty stable overall. Yeah. But underneath that, non-current assets,
• 6:54
  their long-term stuff like buildings and equipment did decrease.
• 6:58
  And that's mainly due to that depreciation we just discussed,
• 7:00
  you know, the value getting used up over time. Okay, so the long-term assets
• 7:04
  decrease slightly due to depreciation.
• 7:06
  What about current assets, the shorter-term stuff? That's where things look a bit brighter.
• 7:10
  Current assets actually increased, and the main reason was a healthy rise in
• 7:14
  their cash and cash equivalent. Oh, how much did cash go up?
• 7:17
  It went from $15.91 million at the end of last year to $17.27 million at the end of March.
• 7:23
  They even break down which currencies they hold it in Sing Dollars,
• 7:27
  Malaysian Ringgit, etc.
• 7:28
  More cash is usually good. Any other moves in current assets? Yeah.
• 7:32
  Trade receivables, the money owed to them by customers, actually decreased slightly,
• 7:36
  which could suggest they're collecting payments a bit quicker.
• 7:39
  So, yeah, a stronger cash position, generally positive.
• 7:42
  Definitely gives them more flexibility. Now, flip side of the balance sheet,
• 7:46
  equity and liabilities.
• 7:47
  What happened with the owner's stake and what the company owes?
• 7:50
  Total equity, the owner's piece of the pie, increased nicely,
• 7:53
  rose from $91.74 million to $94.48 million.
• 7:58
  That was mostly driven by retained earnings, basically, the profit they kept in the business.
• 8:03
  So building up the owner's value and liabilities, what they owe.
• 8:07
  Total liabilities actually decreased, went down from $27.31 million to $24.47 million.
• 8:14
  Looking closer, there were noticeable drops in things like other payables,
• 8:18
  payroll payable, and also their borrowing.
• 8:20
  So they paid down some debt and managed their short-term bills. Seems like it.
• 8:23
  Suggests they're managing those obligations well. So overall balance sheet picture.
• 8:27
  More cash, more equity, less debt.
• 8:30
  Pretty solid. Yeah, that does sound like an improving financial footing.
• 8:33
  OK, now for the cash flow statement. This tell the story of where the actual cash came from and went.
• 8:39
  How does this line up with that slight dip in profit we saw?
• 8:42
  Ah, this is often where you find really interesting insights.
• 8:46
  And here, net cash generated from operating activities, their core business
• 8:51
  actually went up significantly.
• 8:53
  Really? Even with lower profit? Yes. It increased from $3.20 million in Q1 last
• 9:00
  year to $4.0 million this quarter.
• 9:03
  Wow. So what does that tell you? It tells you that the underlying cash generating
• 9:06
  power of their main business is strong.
• 9:08
  They might have higher non-cash expenses like depreciation impacting profit,
• 9:13
  or maybe they manage their working capital like collecting those receivables
• 9:17
  faster really well this quarter. It's a very positive sign.
• 9:20
  Strong operating cash flow is key. That's a fantastic point.
• 9:23
  Profit isn't always the same as cash in the bank. What about cash used for investing?
• 9:28
  Buying assets and things. Net cash used in investing activities was much lower
• 9:32
  this quarter compared to last year.
• 9:34
  $1.67 million used versus $3.08 million used in Q1 2024.
• 9:40
  Why the big difference? The report notes that last year's figure included a
• 9:44
  large deposit they put down for a property they were thinking of buying.
• 9:47
  That didn't repeat this year.
• 9:49
  The main spend this quarter was $1.72 million on buying property,
• 9:54
  plant, and equipment. Which lines up with the Malaysian expansion we keep mentioning.
• 9:58
  Exactly. Buying the equipment and fitting out those centers.
• 10:01
  Okay. And lastly, financing activities, debt repayments, lease payments.
• 10:05
  Here, the cash use went up from $0.21 million used last year to $0.90 million used this quarter.
• 10:14
  The report says this was mainly due to paying the principal portions of their
• 10:18
  lease payments and also repaying some loans, plus the interest payments we talked about earlier.
• 10:22
  So using cash to pay down their obligation. Right. Managing their debt and leases.
• 10:27
  Okay, so let's try and pull this all together. We've got a company growing its
• 10:30
  revenue, driven by that Malaysian expansion, but that expansion comes with higher
• 10:34
  admin costs right now, slightly denting the net profit figure.
• 10:39
  However, crucially, their core operations are throwing off more cash than last year.
• 10:45
  And they're using that cash, strategically investing in more growth in Malaysia
• 10:51
  and also managing their liabilities.
• 10:53
  That's a pretty good summary. And the report also gives us a peek into what's
• 10:57
  next, their outlook. Right. What are they highlighting for the future?
• 11:00
  Well, no surprise, it's heavily focused on Malaysia. They mentioned finalizing
• 11:04
  the deal for those new units in Kuala Lumpur for another medical facility.
• 11:08
  The ISCC-KL project. That's the one. They're saying construction will probably take about two years.
• 11:13
  Then you've got renovations, getting regulatory nods, installing equipment.
• 11:17
  They're aiming to start operations there sometime in 2027. So that's clearly
• 11:21
  a major multi-year strategic investment.
• 11:24
  A big bet on future growth in KL.
• 11:27
  Anything else on the Malaysian front? Yes. They've also set up a new subsidiary,
• 11:31
  72% owned, down in Saramban, ISCC Saramban.
• 11:35
  They plan to inject more capital into that over the next nine months or so,
• 11:39
  funded internally. Okay.
• 11:40
  And they explicitly state they don't expect that particular venture to have
• 11:45
  a material impact on earnings per share this year, 2025. So sounds like a smaller
• 11:50
  but still strategic move into another Malaysian area.
• 11:53
  Makes sense. And what about Myanmar, given the ongoing situation there?
• 11:57
  They address it directly. They acknowledge the extended state of emergency and
• 12:01
  also mention a recent earthquake.
• 12:03
  Importantly, they state their operations in Yangon were not affected by the
• 12:07
  earthquake and, crucially, remained profitable.
• 12:10
  So still making money there despite the difficulty. Yes. They say they're actively
• 12:13
  reviewing things, adjusting expansion plans and cash management for Myanmar
• 12:17
  given the uncertainties.
• 12:18
  But for now, the existing business there is still contributing positively.
• 12:22
  A proactive but watchful stance, it seems.
• 12:25
  Okay, so wrapping up our deep dive on ISCC Healthcare's Q1.
• 12:30
  Revenue growth from Malaysia, yes, but higher costs hitting short-term profit.
• 12:35
  Still, strong underlying cash generation, strategic investments clearly focused
• 12:40
  on future Malaysian growth, and continued profitability in Myanmar,
• 12:45
  despite the challenges.
• 12:46
  That captures it well. And, you know, seeing this picture, the revenue growth
• 12:50
  paired with those increased investment costs impacting immediate profit alongside
• 12:55
  that strong cash flow and the
• 12:56
  big future plans, really leads to a key question for you, the listener.
• 13:01
  Go on. What does this balance tell you about ISCC healthcare strategy right
• 13:05
  now? Are they prioritizing maximizing every penny of profit today?
• 13:09
  Or are they quite deliberately investing heavily now, accepting a bit of short-term
• 13:13
  profit pressure for potentially much bigger growth and returns down the road?
• 13:17
  Where does their focus seem to lie?
• 13:19
  That's a great question to ponder. Of course, we've just scratched the surface
• 13:22
  here based on the announcement.
• 13:23
  For the full detail story, we definitely encourage you to dig into the complete
• 13:27
  financial reports yourself. Absolutely.
• 13:29
  The details are always revealing. Thanks for joining us on this Deep Talk today.