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How HC Surgical Specialists Boosted Profits Despite A Revenue Dip In HY FY2026 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome back to The Deep Dive. Hope everyone's having a good start to the year. Absolutely.
• 0:12
  Today we are putting on our financial strubs, if you will.
• 0:17
  We're stepping into the operating theater of the Singapore stock market.
• 0:20
  That is a very clinical way to put it. I try.
• 0:23
  We're looking at a company called HC Surgical Specialists Limited.
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  You'll see them as HCSS on the exchange. Right.
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  And if you live in Singapore, you've probably seen their clinics.
• 0:32
  They do essential work, you know, gastroscopies, colonoscopies,
• 0:36
  general surgery. Exactly.
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  And the source material we're working from today is their latest financial report.
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  It's the unaudited results for the six months that ended on November 30, 2025.
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  So their half year report card, basically. And our mission is to look at this
• 0:50
  strictly through an investor's eyes.
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  We want to be financial detectives here. Is the company healthy?
• 0:55
  Is it growing? Or are there some headwinds we need to be aware of?
• 1:00
  And right off the bat, I was looking at the numbers and saw something that made
• 1:03
  me do a double take. I know what you're talking about. It's a real paradox.
• 1:06
  It is. Here's the hook for you listening.
• 1:09
  Their revenue, the total amount of money they brought in, actually dips slightly.
• 1:13
  There's a little bit, yeah.
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  But their profit, their actual take-home earnings, they jumped by double digits.
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  It's the dream scenario, isn't it? less work, more money.
• 1:22
  It sounds great, but in business, that's usually either a magic trick or a red flag.
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  So how does a company make more money while selling slightly less?
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  That's the mystery we're going
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  to unpack. And the answer tells you a lot about how HCSS really works.
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  It's not just a medical company. Okay, let's start right there.
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  The top line versus the bottom line.
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  Give us the raw numbers on that revenue dip. So revenue for the six-month period was $9.778 million.
• 1:49
  If you compare that to the same time last year, it was $9.942 million.
• 1:54
  So that's a drop of 1.6%. 1.6%. So not a collapse. It's effectively stable.
• 2:00
  I would say so. A dip that small could be just statistical noise.
• 2:04
  It suggests the core business is holding steady, but it's not,
• 2:06
  you know, growing aggressively.
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  Right. And for a growth investor, that might be a bit of a snooze.
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  But then you look at the profit. The profit attributable to owners,
• 2:14
  yes. And what was that number.
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  That's where the story gets exciting. It came in at S3.971 million dollars.
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  And last year? Last year it was S3.381 million dollars. So that is an increase of 17.5 percent.
• 2:29
  Wow. Okay so flat revenue.
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  But a 17.5% jump in profit. The earnings per share, the EPS, I saw that was up too.
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  It was, up 17.7% to 2.59 cents a share.
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  It tracks the profit growth perfectly. So operationally, they're trading water,
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  but financially, they're swimming laps.
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  That's a good way to put it. All right, let's lift the hood then.
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  How did they do this? Did they just slash all their costs? Actually,
• 2:52
  no. Their main costs went up, which we'll get to.
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  The real secret here, the biggest driver came from outside the clinic.
• 2:57
  It came in the stock market.
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  Wait, what? Are they trading stocks between surgeries? Not quite like that.
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  But HCSS also functions as sort of a strategic investment company.
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  They own pieces of other health care businesses.
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  And we need to look at a line in the report called Fair Value Gain on Financial Assets.
• 3:14
  Fair Value Gain. That sounds like a fancy way of saying our stocks went up.
• 3:18
  That is precisely what it is.
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  HCSS holds a significant stake in Medinex Limited, about 22 percent,
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  and also shares in Singapore Pain Care Holdings, or SPCH.
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  And their stock prices did well. They did very well. So HCSS gets to record
• 3:33
  that increase in value as a gain on their own books.
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  So how big of a gain are we talking about? It was massive.
• 3:38
  This year, they recorded a gain of S-906,000 dollars. Almost a million dollars.
• 3:44
  And for context, last year, in the same period, that gain was only S-129,000 dollars. Oh, wow.
• 3:51
  So that's a jump of, what, 600 percent?
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  Over 600 percent, yes. So a huge
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  slice of that 17.5 percent profit growth came from this one line item.
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  It's not for more colonoscopies. That is a really important distinction for
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  an investor. It's what you'd call paper profit, right? Exactly.
• 4:06
  It makes the bottom line look great, but it's not cash in their pocket,
• 4:09
  not unless they actually sell those shares.
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  It's like feeling wealthy because your house price went up. You can't spend
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  that equity at the grocery store.
• 4:15
  Perfect analogy. And stock prices can go down just as easily as they go up.
• 4:19
  Next year, that gain could be a loss. So relying on that for consistent growth seems...
• 4:27
  Risky. It is, but that wasn't the only thing. They also have what are called
• 4:31
  associates in joint ventures.
• 4:33
  Right. Other companies they own a smaller piece of. Yes, like Total Orthopedics
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  and Healthcare Essentials.
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  Their share of profits from those businesses was $293,000, which was up 50%
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  from last year. So their partners are also doing well.
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  Okay. So the investment side of the business is firing on all cylinders.
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  It really is. But I also noticed something, or rather something that was missing
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  from last year's report.
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  Some big negative items just disappeared. You've got a good eye.
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  Last year was messy. They had a fair value loss on derivatives for S-429,000.
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  And another loss on deemed disposal of about S-204,000.
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  These were nasty one-off costs. And they didn't happen this year. They did not.
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  So just by not having those losses, this year's numbers automatically look a
• 5:17
  whole lot better. It's like, you know, addition by subtraction.
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  And I saw finance costs also drop dramatically. They did, down over 70%.
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  That's because they finished paying off some deferred considerations.
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  Which is basically installment payments for buying other clinics.
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  That's it. So the interest payments tied to those deals are now gone. So to sum it up.
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  Flat revenue, but profits are up because their stocks did well,
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  their partners did well, and a bunch of bad costs from last year just vanished.
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  That's the formula in a nutshell, but we do need to talk about the actual operations
• 5:50
  because running those clinics got more expensive.
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  Right. I was going to ask about that. Let's look at their operating expenses.
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  The biggest one, no surprise, is employee benefits.
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  Salaries, bonuses, all that. It came in at S3.874 million dollars.
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  And how does that compare? It's up 8.6 percent. So wait, revenue is down 1.6%,
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  but your biggest cost, your staff, is up 8.6%. That sounds like a margin squeeze.
• 6:13
  It is. And the report says it's due to a few things. Increased headcount,
• 6:17
  normal salary raises, and higher locum doctors fees.
• 6:20
  Locum doctors. So like freelance or fill-in doctors. Exactly.
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  Specifically for one of their subsidiaries, MDS.
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  This suggests they needed to bring in more temporary and often more expensive
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  help to cover the workload.
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  Why are they more expensive? You're paying a premium for flexibility.
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  It's like calling an emergency plumber versus scheduling one.
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  It costs more to get help on short notice. So it's costing them more to run
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  the machine. Yeah. But they're still profitable.
• 6:43
  Okay, let's talk about my favorite subject, cash. Ah, yes.
• 6:48
  Profit is an opinion. Cash is a fact. You know it. So how is their cash position? It's very strong.
• 6:55
  Their cash and bank balances rose to nearly a $6 million.
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  That's $5.976 million to be exact. And that's up from about $5.1 million just
• 7:06
  six months earlier. Correct.
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  And this is the really reassuring part. That extra cash didn't just come from
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  those paper investment gains. Where did it come from?
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  The cash flow statement shows they generated S3.47 million dollars from their
• 7:18
  actual operating activities.
• 7:20
  Okay, that's the number. That is real money from doing real procedures.
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  It is. It tells you that the core business, despite flat revenue,
• 7:27
  is a cash generating machine. High margins.
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  And when you have that much cash coming in, you can do something nice for your shareholders.
• 7:35
  You can indeed. The dividend. Did they raise it? They did. They declared an
• 7:38
  interim dividend of 0.90 Singapore cents per share. And what was it last year?
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  It was 0.80 cents. So they bumped it up.
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  That's a huge sign of confidence for management. It is. It shows they're not
• 7:50
  worried about their cash flow.
• 7:51
  It solidifies HCSS's reputation as, you know, a solid dividend stock.
• 7:57
  Okay, so that's the present. A stable, cash-rich business with a nice investment
• 8:02
  kicker. What about the future?
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  There are a couple of key things to watch. First is some corporate housekeeping they've been doing.
• 8:09
  Right. I saw some acronyms in the report. GMH, MDS. Yes.
• 8:13
  They've been simplifying their corporate structure.
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  They bought out the remaining shares in a few of their subsidiaries,
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  like GMH endoscopy and HC-ing. They also upped their stake in MDS.
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  And why should an investor care about that? It means they now capture 100% of
• 8:27
  the profits from those units instead of sharing them.
• 8:30
  It makes the whole operation cleaner and more efficient.
• 8:33
  Tidying up the ship. Now, what about that regulatory headwind you mentioned?
• 8:37
  There was something in there about the Ministry of Health. This is the big one.
• 8:40
  The MOH, the Ministry of Health, is changing the rules for integrated shield
• 8:44
  plans, which is the private insurance most people here have. What's changing?
• 8:48
  Starting April 1st, 2026.
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  So very soon, new insurance plans sold will have a higher copayment.
• 8:55
  A higher out-of-pocket cost for patients. Yes.
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  The cap used to be S3,000 dollars. It's going up to a minimum of $6,000,
• 9:03
  and deductibles won't be covered by some riders anymore. Whoa.
• 9:06
  So my surgery could cost me double out-of-pocket. For a new policy, potentially, yes.
• 9:11
  The government's goal is to control overall health care inflation and lower
• 9:15
  premiums in the long run. That makes sense from a policy perspective.
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  But for HCSS, isn't that.
• 9:21
  It's scary. If it costs patients more, maybe they'll think twice about getting a procedure.
• 9:26
  That is the big question. Will higher costs reduce demand?
• 9:30
  Well, if it's a necessary procedure, you're probably still going to do it.
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  That's what management is betting on.
• 9:34
  They stated in the report, and I'm quoting here, they see it as unlikely to
• 9:39
  have an immediate material impact.
• 9:41
  Unlikely to have an immediate material impact. Do we believe them?
• 9:45
  I think it's a reasonable stance.
• 9:47
  These aren't elective cosmetic procedures. It's about health,
• 9:50
  but it's a variable we absolutely have to watch. Definitely.
• 9:53
  Okay, one last metric. Net asset value, the NAV.
• 9:56
  The book value of the company. It's up.
• 9:59
  NAV per share rose to 15.07 cents from 13.66 cents six months ago.
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  So on paper, the company's fundamentally worth more.
• 10:09
  Yes. The combination of their earnings and those investment gains has grown
• 10:13
  the company's intrinsic worth. All right, let's wrap this up.
• 10:15
  For everyone listening, what are the main takeaways from this deep dive? I'd say there are three.
• 10:20
  First, that profit jump was driven more by investments and disappearing costs
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  than by business growth.
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  The core operation is stable, not growing. So look under the hood of the headline number.
• 10:31
  Got it. Second, cash is king. The company generates a ton of real cash,
• 10:35
  which supports that rising dividend.
• 10:37
  It's a very solid foundation. We love a rising dividend.
• 10:40
  And third, they seem to be a steady ship. They're managing their corporate structure
• 10:44
  well, and they appear calm about the upcoming regulatory changes.
• 10:48
  It feels like a very mature, stable company that got a lucky bonus from the
• 10:55
  stock market this half. That's a perfect summary.
• 10:59
  You know, leads me to a final provocative thought for you to consider.
• 11:02
  Ooh, let's hear it. We just spent a lot of time talking about their fair value
• 11:05
  gains and their stake in Maninex. My question is this.
• 11:09
  Is HCSS a surgery business that does a little investing on the side?
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  Or is it slowly turning into a healthcare investment holding company that also
• 11:19
  happens to run some clinics?
• 11:21
  That's a great question because as an investor, you have to decide which business
• 11:24
  you're actually buying.
• 11:25
  Exactly. Are you betting on the surgeon's scalpel or the fund manager's portfolio?
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  Something to think about.
• 11:31
  Fantastic deep dive. That is all the time we have for today. A pleasure, as always.
• 11:36
  Thanks for listening, everyone. Stay curious, and we will catch you on the next deep dive.