Disclaimer: The purpose of this blog is to share knowledge, news and personal opinion on investment, economy, stock market etc. There is no guarantee that all the information provided here are accurate and up-to-date. The author should not be held liable for any investment loss suffered by readers of this blog. Invest at own risk!
I have no glove stocks or other "explosive" stocks in my portfolio. There is zero excitement within my boring portfolio. Year-to-date the return is still in negative territory.
If I did not sell all Adventa shares earlier this year, my overall portfolio will surely gain more than 100% by now, as Adventa was my largest holding by value in my entire stock market investing journey.
That was history. Though it was certainly a missed opportunity, I couldn't regret my sell decision. I bought Adventa not because of its gloves or medical supplies business, and I never thought that Covid-19 can quadruple its profit just like its share price.
I'm looking for stocks that can post better financial results in Q3 & Q4 of calendar year 2020, as we know that Q1 & Q2 will not be good for most companies.
Even though there are a few fundamentally sound stocks, I'm not sure whether this economy downturn has affected its fundamental. Perhaps I'm over cautious.
Gloves and some medical related stocks have skyrocketed to PE close to 100. Although gloves companies are the ones that will 100% report growth in profit throughout 2020, I feel too risky to join the euphoria at this high level.
Most good tech stocks have recovered quickly and even broke new high. Once I felt lucky that I sold all Frontken shares in Feb20 at RM2.35 before it fell to RM1.00 in Mac20. Now Frontken has breached RM3 mark a few days ago.
There are many tech stocks with PE of 30 and above now. It is also hard for me to buy especially knowing that their Q2 result will not be that good, and not knowing whether their orders have been negatively affected.
Nevertheless, for long term, they are still good. It's just that they are not cheap to me. I missed the opportunity to grab them cheap in March...
The stocks that I do consider to buy are O&G counters, gloomy stocks such as GENM & Airasia. Those companies are suffering the most recently, but will certainly recover.
Airasia is expected to post a poor FY20Q1, terrible Q2 and bad Q3. Low crude oil price might cause hedging loss in short term as well. Travel habit might not be the same for the next 1-2 years. That's why I still hesitate to buy its shares.
However, I might be wrong as any good news on flight resumption and global travel ease will push up its share price until a situation where bad result is not a problem anymore.
I added 2 construction stocks in my portfolio in May20, this is kind of weird because personally I don't like construction stocks. I bought them simply because I think these 2 are almost certain to post better & better results for many quarters to come.
No one can buy and service cars during MCO, it's not a secret that FY20Q4 of BAuto (Feb-Apr20) will be terrible. However, everything should be back to normal soon. So I still hold.
No one can buy a house and the progress billing will stop during MCO, Matrix will also suffer in its FY20Q4 (Jan-Mac20) & FY21Q1 (Apr-Jun20). After that, sales might pick up. I am still holding.
I think Hibiscus is one of the best O&G company in Malaysia, that's why I chose it last year and planned to keep for longer term. Even at crude oil price of USD30, it can still make a profit.
DKSH should be steady. A lot of things we eat and use everyday might be related to it. I see it like Nestle or Dutch Lady though their business models are different. It pays good dividend but it does not pay it for FY2019 due to current uncertainty.
Another company that temporarily scrap its dividend pay is Leon Fuat.
About other stocks, I am more worried about Geshen, which I added in Feb20 just before the stock market started to turn sour. Its business is more likely to be negatively affected by Covid-19 and a turnaround might not be so soon.
Again, the total number of stocks in my portfolio swell again. Which one should I sell?
I put it as Stock X as I fear that I might have bought it too early, and it's proven that indeed I am. However, I don't mean that it's time to buy Adventa's shares now.
The first time I bought Adventa's shares was in July 2016, but I have been following it for a few years before I made my move.
Adventa used to be a medical gloves manufacturing company until it sold this business in 2011 to a private company related to its MD Mr Low Chin Guan.
After a brief period in PN17, Adventa kick started its new businesses in healthcare industry in the form of hospital supplies distribution, medical devices sterilization & home dialysis.
I bought Adventa's shares only because of its home dialysis business under its wholly owned subsidiary Lucenxia.
Lucenxia has come out with the APD (Automated Peritoneal Dialysis) machine called "Intellis" under the Malaysia's Economic Tranformation Programme (ETP) launched by the previous government.
If you don't know what is APD, you can refer the the earlier post "About Stock X".
To prove its efficacy, it must run clinical trials first and this is usually a long, painful & money-burning process. After several delays, Intellis was finally launched in January 2016.
Nevertheless, Adventa is not the only one who provides APD in Malaysia. Prior to that, there are already two established international players here: Baxter (US) & Fresenius (Germany).
So, Adventa does not monopolize APD, but it offers "Made in Malaysia" perhaps cheaper option of APD.
For Adventa's business to become successful, I think there are a few criteria that need to be met.
First, it's the efficacy of Intellis. In other words, it must work well! No one will ever use something that is in doubt, especially when it's related to health. If it passed the clinical trials, I assume that it should be OK unless new issues arise later.
Second, it must be priced competitively. Patients will rent the APD machine with service and not buying the whole machine. So the monthly expenses must be cheaper than Baxter & Fresenius, just like Proton cars must be cheaper than Toyota cars then only got people buying Proton.
Generally, CAPD is the cheapest way of doing dialysis. HD & imported APD cost higher. Adventa's local APD ideally should cost in between CAPD & HD.
Unfortunately I don't know the exact cost of Intellis APD at the moment. I read an article earlier from Focus Malaysia and Adventa's MD mentioned about the cost per patient of this Intellis. I can't remember the figure and can't find that article now, but I feel like it's slightly lower than HD cost, perhaps about RM3000 per month.
Third, it's about government support & policy. A significant numbers of dialysis patients are being paid by the government/JPA/Socso. Even if it's supported by NGO, most are also subsidized by the government. If the government approves payment for Intellis users, then it can have a chance to get more patients to choose Intellis.
To get government support, cost & expenses are surely a factor, besides some political connection. If it can save government money, surely it has a chance especially when government has tight budget.
Anyway, APD is still not that popular among Malaysian, with only 13-14% of PD patients are on APD while the rest are on CAPD/DAPD (modified form of CAPD)
To recap, 10% of dialysis patients in Malaysia are on PD, the rest are HD. So APD is 13-14% of those 10%.
In numbers, only 605 patients are on APD in year 2016, out of total 39,711 dialysis patients. That's merely 1.5%. However, we can see that the numbers of APD is increasing yearly without fail since 2007.
After the launch of Lucenxia's Intellis, it might create more awareness and increase the percentage of patients on APD.
Like I mentioned before, most kidney failure patients will be put on HD first before PD, that's why we have 90% of patients on HD.
From online search, I found that Malaysia Ministry of Health actually has adopted "PD first" policy since 2013, which means all kidney failure patients will be prepared for PD first, only if PD is not feasible then only do HD.
"PD First" Policy reported by New Straits Time Malaysia in 2014
Current practice is like "HD first" which is the other way round. This "PD first" policy is never implemented, if it really exist.
If "PD first" is seriously carried out, how much do you think it can benefit Adventa? You guess it.
Hong Kong is one of the region who successfully adopted PD first policy since 1985. As of year 2013, 76% of kidney failure patients in Hong Kong were treated with PD.
Our neighbour Thailand also adopted PD first policy since 2008. It is reported to be successful and their PD users comprise approximately 30% of total dialysis patients in 2015.
Most of the patients on PD are on CAPD which has lower cost, but we can expect APD will also rise because of more awareness of PD.
Percentage of HD & PD in year 2015
Back home in Malaysia, the dormant PD first policy is not easy to execute in my opinion, unless we have a very dedicated health minister to make it happen.
As you can see, dialysis is a big business. We have a lot of private dialysis centers (HD) that are owned by or connected to doctors, nephrologists (kidney specialists) & prominent figures in the society. So it's not that easy to promote PD first.
Adventa might face headwind for its home dialysis business to grow fast at home, but perhaps there is a chance overseas?
It has been a while that Adventa works with Sri Lankan government to introduce its APD there and currently it might be in trial phase. If it can be rolled out successfully, then it will only be good news to Adventa's shareholders.
Photo from Adventa Berhad website
A lot of things happen after I bought Adventa's shares. In Oct 2017, news broke out that Top Glove was going to acquire Aspion, a medical glove manufacturing company previously sold by Adventa.
As Aspion was at that time held by a private company Adventa Capitals Pte Ltd, which has the same name "Adventa" as publicly listed Adventa Berhad, speculators jumped in to push up the share price from 60sen to almost RM1. Then everyone knew it was a mistake and the share price quickly retreated to 60sen.
A year later, Top Glove found out that the acquisition price was overstated by RM640.5mil and filed law suit against Adventa Capitals (not Adventa) and its directors. Again, Adventa's share price took a hit.
This time it was not totally irrelevant because Adventa's MD Mr Low Chin Guan is also a director of Adventa Capitals. So his accounts were frozen and the initial plan to inject fund into Adventa through rights issues and free warrants has to be called off.
Personally I don't like this rights issues as it will significantly dilute the earnings. So its cancellation is a good news to me.
The burning question is, is the MD Mr Low Chin Guan a credible and trusted person to lead Adventa? Hmm.... I really don't know.
In May 2019, Adventa announced its decision to dispose entirely its sterilization business (E-beam) and took a net gain of RM35.2mil. It distributed 7 sen per share of special dividend back to shareholders ex-ed on 14 Jan 2020.
Sterilization business has been the only profitable business of Adventa in recent years, while its healthcare segment (hospital supplies distribution & home dialysis) is loss-making.
Moving forward, we can expect Adventa's bottom line to be in red throughout year 2020. When can it turn profitable will largely depend on its home dialysis business.
Actually I welcome the move to divest its sterilization business, to get the much needed cash to concentrate on healthcare business and pay the debts.
Just weeks ago, because of the Covid-19 outbreak, somebody still thinks that Adventa produces medical gloves and its share price jumped again only to fall back as expected.
The home dialysis business is still in infancy stage, its success will depend on how well Adventa promote it locally and regionally, as well as government policy.
As explained above, I think it is not easy to roll out fast in home soil. So, regional expansion might be the key.
If Adventa receive RM3000 per month from each patient using its Intellis APD machine & service, it will generate RMRM36,000 of revenue in one year per patient.
If there are 100 patients using it, one year revenue will be RM3.6mil. At this stage I'm not sure whether it can break even or not.
If there are 1000 patients using it, revenue per year will reach RM36mil and it should be able to generate profit. I expect the profit margin should not be low if it achieves economy of scale.
One thousand users seem to be a lot, but it's only 1.5% out of 70,000 estimated total dialysis patients in Malaysia in 2020, and we're not even counting contribution from overseas.
APD is cost effective & convenient, and it improves the quality of life of dialysis patients. I can't find a reason why anyone will not consider it as first choice.
The current truth is, patients are not given a proper chance to choose, which is sad. I believe that one day the public awareness will increase and APD will be more commonly used.
Adventa published a very good video (as shown below) on its Intellis APD cycler few years back. I think those whose family members, relatives or friends who are planning for dialysis should take a good look into APD.
Malaysia's population is increasing. Certainly, its elderly population is also increasing because of increased life expectancy.
I think no one will disagree with me if I say that chronic degenerative diseases such as hypertension, diabetes mellitus, heart attack, stroke, cancer, kidney failure etc are getting not only more common, but also affecting younger age group.
Kidney failure, one disease that many people fear of, is no doubt getting more prevalent no matter you like it or not.
From Malaysia National Renal Registry data, there were 7,663 new dialysis patients and total 39,711 active dialysis patients in year 2016.
Even though new dialysis patients drop slightly for the first time in don't know how many years in 2016, total patients on dialysis treatment is on a steady rise without fail, doubling from approximately 17,000 patients in 2007 to 40,000 patients in 2016.
Unfortunately, we only have data up to year 2016, even though now we are already in 2020.
Nevertheless, base on this trend, if I just add average 8,000 new cases each year, end of 2020 will see 72,000 patients on active dialysis.
For someone who has end stage kidney failure, the only "cure" is kidney transplant. If not, dialysis is the only other option to prolong life.
In Malaysia, when talking about dialysis, almost everyone will straight away think of "cuci mesin", “洗肾中心”, "dialysis center", which is hemodialysis (HD).
In HD, a patient is connected to a dialysis machine and the machine filter the metabolic waste from blood and circulate the clean blood back to the patient.
Not many people realize that there is another way of dialysis called peritoneal dialysis (PD).
In PD, fluid (dialysate) is drained into a patient's abdomen where an abdominal structure called peritoneum acts as a natural filter. After a few hours, the fluid with toxin and waste is drained out.
Peritoneal Dialysis (PD)
According to National Kidney Registry Malaysia, approximately 90% of kidney failure patients are on HD, while the rest of 10% on PD. Obviously HD is overwhelmingly a more popular choice among Malaysians.
These figures remain rather constant throughout the years, but we can see that PD might be on a slow rise.
Between HD & PD, which one is better, safer or more efficient?
Each methods has its pros and cons, and I'm not going to go into such details here.
In short, actually PD is equally good, if not better than HD according to various researches.
Since PD is at least equally good, why are so many patients treated with HD rather than PD in Malaysia? It's more about government's policy & hospital "culture".
Basically in Malaysia, when a patient is diagnosed with end stage kidney failure and needs long term dialysis, doctors will straight away prepare the patient for HD without talking much about PD to the patient.
If everything is OK, patient will start HD. Only if HD is really not suitable or failed, then the patient will do PD.
Some HD patients don't even know the existence of PD after undergoing dialysis for many years!
So in Malaysia, it's "HD First" policy even though I don't think this is officially in place.
There are generally 2 types of PD: Continuous Ambulatory Peritoneal Dialysis (CAPD) & Automated Peritoneal Dialysis (APD).
In CAPD which is usually home based, patients need to manually drain the fluid into their abdomen through a permanent catheter fixed at abdomen, leave the fluid inside (dwell) for 4 hours then come back to drain out the fluid and put in fresh fluid again. This cycle goes on and usually 4 cycles are needed per day, everyday.
Patients with HD have to travel to dialysis center 3 days a week, with each day 4 hours of dialysis. If we include transport and waiting time, 5-6 hours might be needed for a HD session.
So in CAPD, you have 4 hours to move around freely when the fluid is in your abdomen. You have to come back home to drain out the fluid. In HD, you're stuck to dialysis machine at least 12 hours a week, the rest of the time you can freely move around.
HD needs transport to a dialysis center with big needles poked into your arm every time you are connected to the machine. CAPD can be done by own self at home 4 cycles a day everyday. Which one would you prefer if you're going for dialysis?
Most patients who stay in rural area need PD because no investors will want to set up a dialysis center in rural area just to treat a few patients, and transport to a dialysis center in town is costly and inconvenience.
If you don't want or can't go to dialysis center for HD, and don't like the hassle of draining the dialysis fluids in and out 4-5 times a day, then Automated Peritoneal Dialysis (APD) is the solution.
APD is just like CAPD which can be done at home using peritoneum in the abdomen as filter. The difference is, APD is done at night while you're sleeping using a machine (cycler) to drain the fluids in and out automatically.
So, after waking up in the morning, you are free to move everywhere. You just need to connect to the machine when you're going to bed at night. Basically it does not affect your day time activities. You can go KLCC shopping for a whole day without the need to come back home after 4 hours.
Even when you are traveling to other places for few days or weeks, you don't need to face difficulty in searching for dialysis centers to slot you in, you can carry the portable APD machine with you.
Personally I think APD is the best way of dialysis. However, it is the least used method in our country by miles.
Some readers should have known by now what is my "Stock X". Obviously, it is related to this APD.
Only 10% of dialysis patients are on PD, and even less patients are on APD. Will it be enough to support Stock X's business of APD home-based dialysis?
