Econ Healthcare expects to book S$3.4m loss from selling stake in Crosstec

CATALIST-LISTED nursing operator Econ Healthcare (Asia) EHG said late Wednesday (Jan 12) it expects to book S$3.4 million in losses from selling all of its stake in Crosstec Group Holdings, after the latter's shares plunged earlier in the week.

Econ Healthcare had recently invested around S$4 million of its idle working capital to buy 11.8 million shares in Crosstec, a Hong Kong-listed interior design company.

On Tuesday (Jan 11), Crosstec shares nosedived 84 per cent to HK$0.38. Econ Healthcare said its board of directors was "not aware of the reason for the substantial decrease".

Econ Healthcare expects the loss will be material to the company. The stake it owns represented 13.8 per cent of the group's net tangible assets in its latest audited financial statement as at Mar 31, 2021 - and 4.7 per cent of the company's market capitalisation as at Jan 12.

Post disposal, the company's earnings per share for FY2021 ended March would fall to S$0.89 from S$2.22.

Econ Healthcare does not, however, expect the investment to have any material impact on the working capital, cash flow and operations of the group's business.

The company said the shares - which were sold on Jan 12 - were classified as financial assets held at fair value. Hence, the changes in fair value would be recognised as a profit and loss during its semi-annual reporting period.

It also noted that its growth prospects remain positive with a number of upcoming key projects, including nursing home projects in Singapore and China that will commence operations in 2022 and 2025.

The company said it "will be reviewing its investment strategy to align with its focus on growing its core business and maximising returns for shareholders".

Econ Healthcare also disclosed that one of its directors and controlling shareholders has and had interest in Crosstec shares, although none of its other directors or controlling shareholders has or had any interest of 5 per cent or more in Crosstec.

In a blog post on Thursday, professor of accounting at the NUS Business School Mak Yuen Teen pointed out that this contradicted earlier disclosure that none of its directors or controlling shareholders of the company has any interest in the acquisition of shares.

He questioned the role of the director, as well as other directors, in recommending and approving the acquisition of shares.

He also noted that Crosstec's business is totally different from Econ Healthcare's.

On Jan 12, DBS Group Research had downgraded Econ Healthcare to "hold" from "buy", and lowered its target price for the stock to S$0.28 from S$0.40, after Crosstec's share price plunge.

In a research note, analyst Paul Yong said: "While the company stated that the investment was intended to improve the yield on idle cash through dividends and share price appreciation, the investment of the majority of its idle cash into a single, loss-making, small-cap company is a riskier decision than one would expect."

He added that the brokerage would "wait for further clarity" on the company's plans for its investment strategy before turning positive, although he noted that prospects for Econ Healthcare's core nursing home business remain intact.

Shares of the counter closed flat at S$0.28 on Jan 13.

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