Latest / Investor Exchange / Find Out Why ISEC Healthcare’s Strong Q3 2025 Sales Didn’t Translate To Higher Profits

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Find Out Why ISEC Healthcare’s Strong Q3 2025 Sales Didn’t Translate To Higher Profits · Investor Exchange

• 0:02
  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome to the Deep Dive. We sort through the noise to bring you the knowledge you need.
• 0:11
  Today, we're digging into the unaudited third quarter results for 2025 from ISEC Healthcare Ltd.
• 0:18
  And well, right off the bat, these numbers are a bit of a puzzle,
• 0:22
  aren't they? You look at the top line, revenue is up, looks great.
• 0:24
  But then the bottom line, the net profit actually went down.
• 0:28
  It feels counterintuitive.
• 0:30
  Our job today for you is to figure out why. Why is this healthcare group making
• 0:35
  more money, but keeping less of it right now. Let's unpack this then.
• 0:39
  Maybe start with the good news. The top line strength seems like the obvious place.
• 0:44
  Yeah, so ISIC's revenue performance looks really strong. There's definite momentum there.
• 0:49
  In Q3 2025, revenue hit over $20.6 million.
• 0:54
  That's what, a 9% jump from the same quarter last year? Pretty solid.
• 0:59
  And looking at the nine months, they brought in $58.5 million.
• 1:03
  That's an 8% increase year over year.
• 1:06
  So consistent growth. And what's really telling is where that growth came from.
• 1:10
  The source is quite specific.
• 1:12
  It's not just general market lift. It's pinned directly to more business and
• 1:15
  their specialized health services. Okay.
• 1:17
  And even more specifically, a key driver was increased patient visits in Malaysia.
• 1:21
  Ah, so demand is picking up geographically for their core services.
• 1:24
  Exactly. It shows the underlying demand is healthy and actually expanding.
• 1:27
  And does that translate into healthier margins too? What about the gross profit?
• 1:30
  It does actually. Gross profit was up 11% in Q3, hitting around $9.07 million.
• 1:36
  And maybe even more importantly, the gross profit margin edged up slightly.
• 1:41
  Went from about 42.8% last year to almost 44% this quarter. Okay,
• 1:46
  so they're making more on each dollar of service.
• 1:48
  Precisely. It suggests their core operations, you know, delivering those specialized
• 1:52
  health services, are not just growing but getting slightly more efficient.
• 1:56
  They absorbed a 7% rise in their cost of sales, the direct costs,
• 2:00
  and still improve the margin. Operationally, things look.
• 2:05
  Pretty good at that level. Right. The engine seems to be running smoothly,
• 2:08
  more volume, better efficiency.
• 2:10
  So if the engine's running fine, something else must be dragging down the overall result, right?
• 2:14
  Because despite that strong revenue and gross profit, net profit,
• 2:18
  the bottom line fell by 9% in Q3, and it was down 2% over the nine months.
• 2:22
  So what happened between gross profit and net profit? What's eating into it?
• 2:26
  Okay, yeah. This is where the picture gets, let's say, more nuanced.
• 2:30
  We can basically trace the decline to two main things happening after gross profit is calculated.
• 2:34
  The first one, and it's often a big swing factor for international companies,
• 2:38
  is foreign exchange or FX volatility.
• 2:41
  Wow. Currency fluctuations.
• 2:43
  Big time. Look at the difference year over year. In the first nine months of
• 2:47
  2024, ISEC actually booked a gain from foreign exchange.
• 2:51
  Almost $800,000 extra. Kind of a bonus. Okay. But fast forward to the same period
• 2:56
  in 2025, and that completely flipped.
• 2:59
  They recorded an FX loss of over $200,000. Wow, that's a swing of over a million
• 3:04
  dollars right there. Exactly.
• 3:05
  A million dollar negative swing purely from currency movements.
• 3:08
  That alone puts a big dent in the net profit comparison, especially in Q3,
• 3:13
  where the source notes an $810,000 difference just from FX.
• 3:17
  OK, hold on. A million dollar swing from FX.
• 3:20
  I mean, is that just bad luck with the market or does it say something about
• 3:24
  how they manage currency risk?
• 3:25
  Should they be hedging more effectively, perhaps? Perhaps. That's a fair question.
• 3:29
  Operating across Singapore, Malaysia, Myanmar, you're inevitably exposed,
• 3:34
  right? Some volatility is unavoidable.
• 3:36
  But a swing this big, it could suggest either really sharp moves in,
• 3:40
  say, the Malaysian ringgit against their reporting currency,
• 3:43
  or maybe a strategic decision not to hedge aggressively.
• 3:46
  Perhaps they see it as a cost they'd rather avoid and just ride out the waves. Hmm.
• 3:50
  Something to keep an eye on then. Risk factor.
• 3:53
  Okay, so FX is one big piece. What's the second major factor driving profit down?
• 3:59
  The second one seems much more deliberate, tied to their strategy.
• 4:03
  It's a significant jump in administrative expenses.
• 4:06
  Right, the overheads. How big a jump are we talking? Admin costs climbed by
• 4:10
  about $1.4 million over the nine months. Okay.
• 4:13
  And the source is clear this isn't just, you know, inflation across the board.
• 4:17
  It's directly linked to growth activities.
• 4:20
  Specifically, the costs associated with opening new and expanded iCenters in Malaysia.
• 4:25
  Ah, setting up shop. Yeah. And also higher staff related costs across all their
• 4:30
  centers, because remember, they're seeing more patients overall.
• 4:33
  That increased activity needs more support staff, admin, etc.
• 4:36
  They're basically paying the setup and running costs for future growth now.
• 4:40
  Got it. So FX headwinds and increased spending on growth initiatives.
• 4:45
  And I think the report mentioned something else that actually helped the profit slightly.
• 4:48
  Some accounting thing. Ah, yes. Good catch.
• 4:50
  There was a small offsetting factor. About $400,000 in certain amortization
• 4:55
  expenses that they recorded in 9M 2024 just disappeared in 9M 2025. Why?
• 5:02
  Because the intangible asset linked to that expense was fully amortized,
• 5:06
  fully written down on the books by the end of 2024.
• 5:09
  Okay. So amortization is like spreading the cost of something not physical,
• 5:13
  like goodwill, over time. Exactly.
• 5:15
  And once that time period is up, the expense vanishes from the income statement.
• 5:19
  So even with that $400,000 boost from disappearing amortization,
• 5:23
  the net profit still fell.
• 5:25
  Correct. Which really highlights how significant those admin cost increases
• 5:29
  and the FX hit actually were.
• 5:31
  They overwhelmed that little bit of accounting relief. OK, so we've mentioned
• 5:34
  the higher admin and staffing costs tied to new Malaysian centers.
• 5:37
  That naturally leads us to think about the big money, the capital spending required
• 5:41
  to actually build these places. Absolutely.
• 5:43
  And this is where you see the strategy playing out very clearly on the balance
• 5:46
  sheet and in the cash flow.
• 5:48
  If you connect those rising admin costs to the bigger picture investments.
• 5:52
  It's clear ISCC is heavily investing in physical infrastructure right now.
• 5:57
  Spending money to make money down the line. Pretty much. Look at their cashless statement.
• 6:01
  Net cash used in investing activities more than doubled in the first nine months of 2025.
• 6:06
  Doubled. Wow. Yeah, they spent almost $13.8 million on investing activities,
• 6:12
  compared to about $6.7 million in the same period last year.
• 6:15
  And almost all of that increase, around $14 million in total spending,
• 6:20
  was on purchasing property, plant, and equipment, PPE. $14 million.
• 6:25
  That's significant capital expenditure. It really is. It's like they're paying
• 6:28
  the construction bills and the initial team salaries for a major new facility
• 6:32
  that isn't generating revenue yet.
• 6:34
  And is this mostly tied to that big Kuala Lumpur project we've heard about?
• 6:38
  Primarily, yes. The source links this massive spike in spending and the related
• 6:43
  changes on the balance sheet to one key strategic move.
• 6:47
  The acquisition of what they call strata title units in a new building in Kuala
• 6:52
  Lumpur, the ISEC KL acquisition. Strata title units.
• 6:55
  So like buying specific floors or spaces within a larger commercial building.
• 7:00
  Exactly. Like buying a commercial condo unit, essentially.
• 7:03
  It represents a huge multi-million dollar bet on that new KL location.
• 7:07
  And how are they paying for it? It must involve borrowing, right? Oh, definitely.
• 7:11
  To finance this property purchase, they secured a bank loan facility of RM50
• 7:15
  million, which translates to about 15.1 million Singapore dollars.
• 7:19
  As of the end of September 2025, they'd already drawn down over $10 million of that loan.
• 7:24
  Right, and that explains the huge jump in their debt levels on the balance sheet.
• 7:28
  Non-current borrowings went from under a million to over $11 million.
• 7:32
  Precisely. It all connects. They're taking on significant debt to fund this
• 7:36
  major expansion. And here's the crucial timeline aspect.
• 7:39
  Construction on this big KL center started mid-2024, but they don't expect operations
• 7:43
  to actually begin until 2027.
• 7:46
  2027. So years away. Years away. And that's pending regulatory approvals.
• 7:50
  So for the next couple of years, they're carrying the costs,
• 7:52
  interest on the loan, the admin expenses for pre-opening, the capital tied up
• 7:56
  all before they see any revenue from it.
• 7:58
  OK, that really squares the circle then, doesn't it?
• 8:01
  The paradox we started with, revenue up, profit down, it's largely explained
• 8:06
  by this massive long-term investment cycle.
• 8:08
  I think so. They're consciously sacrificing some short-term profitability today
• 8:12
  to build out significant future capacity, especially with this flagship KL Center.
• 8:17
  It's a classic growth investment play. Growth over immediate profit maximization.
• 8:21
  Makes sense strategically, even if it pinches the numbers right now.
• 8:24
  And there was another smaller loan mentioned too, right, for Klang?
• 8:27
  Ah, yeah, a much smaller one, about $793,000, also a bank loan,
• 8:32
  tied to the initial setup costs for another Malaysian entity, ISC Kling Astien, BHD.
• 8:37
  So more expansion, just on a smaller scale there.
• 8:41
  All right, so beyond the big building projects in Malaysia, what else did the
• 8:44
  commentary flag as known factors or maybe risks looking ahead,
• 8:48
  say, over the next year or so?
• 8:49
  They highlighted two key things to watch. First...
• 8:53
  The situation in Myanmar. Right. Always a volatile factor there.
• 8:56
  Yeah. The political landscape remains very uncertain.
• 8:59
  There's the ongoing civil conflict, and the military government itself has acknowledged
• 9:04
  it's going to be difficult to hold the general election previously planned for December 2025.
• 9:09
  That creates obvious operational risks. However, and this is a crucial detail
• 9:13
  from the report, despite all that uncertainty, ISAC's center in Myanmar is apparently
• 9:19
  still operating and, importantly, remains profitable.
• 9:23
  Okay, so that revenue stream, though potentially risky, is still contributing.
• 9:27
  That must be important while they're spending so much elsewhere.
• 9:30
  Critically important, I'd argue. It helps fund the transition.
• 9:33
  Okay, what was the second factor? The second relates to key personnel,
• 9:37
  specifically Dr. Li Hung-Ming, who is the executive vice chairman.
• 9:41
  His current employment term was only extended for a short period,
• 9:44
  just three months, running until December 31st, 2025.
• 9:48
  Hmm, only three months. Yeah, the commentary states the group is currently negotiating
• 9:52
  his longer-term employment contract.
• 9:54
  So a bit of uncertainty around a key leadership role in the near term.
• 9:57
  That's always something investors watch. Absolutely.
• 10:00
  You've got this major construction project, significant debt,
• 10:04
  geopolitical risk in Myanmar, and potential leadership transition all happening concurrently.
• 10:09
  It's definitely a complex period to navigate.
• 10:11
  But overall, their strategy seems unchanged, still focused on growth.
• 10:16
  Seems so. The Outlook section reiterates they're still actively looking for
• 10:20
  suitable opportunities, especially in Vietnam and Myanmar, while also strengthening
• 10:23
  their core markets in Singapore and Malaysia.
• 10:26
  The growth engine is still the priority.
• 10:29
  So if we pull it all together, what does this mean for you listening?
• 10:32
  That initial contradiction, the revenue going up while profit goes down,
• 10:36
  it really comes down to timing and strategy.
• 10:38
  The pressure on net profit right now isn't really indicating a weakness in the core business.
• 10:43
  Remember, revenue and gross profit are actually strong and improving.
• 10:47
  Yeah, operationally sound. Right.
• 10:48
  Instead, the dip is more a function of, well, two main things.
• 10:52
  That volatile foreign currency environment hitting them, and maybe more significantly,
• 10:56
  this very deliberate, very aggressive investment phase. They're spending heavily
• 11:01
  now on those new Malaysian centers.
• 11:03
  Centers that won't generate revenue for a couple of years yet until 2027.
• 11:07
  Exactly. So that's the essential story here.
• 11:09
  ISSE is making a calculated bet. They're taking on debt, incurring higher operating
• 11:14
  costs now, all to build future revenue streams and capture more market share down the line.
• 11:20
  Prioritizing that long-term growth over maximizing the profit numbers today. Precisely.
• 11:25
  And that leads to maybe a final thought, a question for you to consider as you
• 11:28
  watch ISSE going forward.
• 11:29
  Given how much they're investing, how much debt they've taken on for that big
• 11:33
  2027 Kuala Lumpur center, how critical is the continued profitability and maybe
• 11:38
  even the stability of their current operations? You mean including the center in Myanmar?
• 11:43
  Including the one in Myanmar, yes, given the political uncertainty there.
• 11:46
  How much do they need those existing centers to keep performing well to bridge
• 11:50
  this multi-year gap until that massive new KL capacity finally comes online
• 11:55
  and starts paying back? Hmm.
• 11:57
  That's a really interesting point. The health of the now business is basically
• 12:01
  funding the transition to the future business.
• 12:03
  Its stability is key. Feels like the lifeline, doesn't it? Something to definitely keep tracking.