Is Bamboos Health Care Holdings Limited A Hidden Gem?
January 29, 2020
Bamboos Health Care Holdings Limited (HKG:2293) (“Bamboos”) is a leading provider of healthcare staff solution services in Hong Kong. As of 13th January 2020, the Group has a market capitalisation of approximately HK$400.0 million. In this article, we will take a closer look at the business, management and financial aspects of the Group, to see if it is worth an investment.
Bamboos’ principal business is to provide customized healthcare staffing solution services on a temporary basis to individuals and institutional clients in a timely manner as well as duty opportunities to self-employed healthcare personnel registered with the Group. Bamboos places healthcare personnel registered with the Group, in the capacity of self-employed persons, in appropriate vacancies and refer them duty assignments which fit their preferences. There were over 20,000 healthcare personnel registered with the Group as of 30 June 2019.
The following chart illustrates the Group’s business model and operation in provision of services to various clients through the placement of healthcare personnel.
(Source: IPO prospectus)
Bamboos’ services comprise primarily the provision of: (i) institutional staff solution services, and (ii) private nursing staffing services. Under its institutional staffing solution service, the Group provides (a) placement services which deliver locum and ward relief services to hospitals and social service organisations by placing healthcare personnel to fill vacancies in wards, residential care homes for the elderly (“RCHEs”) and rehabilitation centres; and (b) clinical programme support, such as provision of injection services and health education services, where the Group place healthcare personnel on a temporary or project basis. The Group’s nursing staffing services are designed for individual clients, matching their needs with registered healthcare personnel.
A criticism of Bamboo’s business model is that its business is concentrated mainly in Hong Kong. In efforts to diversify the business of the Group beyond its existing geographical location, Bamboos has embarked on a joint venture (namely Bamboos Professional Nursing Services Pte Limited) in 2017, with a wholly owned subsidiary of Lippo China Resources Limited, to principally engage in the provision of customised healthcare personnel on appropriate vacancies and duty assignments in Singapore.
Separately, the Group has added breath to its range of services by setting up of a company, Garden Medical Centre Limited, with two doctors to explore and tap into the potential of the operation of plastic surgery clinics in Hong Kong.
Market Leadership and Competitive Strengths
The healthcare staffing solution service industry in Hong Kong is dominated by two top players. Bamboos is the market leader in the healthcare staffing solution service industry with close to 50.0% market share. The next largest player only has a market share of 20.0%, meanwhile the rest of the competition is fragmented among smaller players.
New entrants in the industry may face difficulties operating at a large scale due to different barriers or limitations such as:
· Hard to establish vast healthcare personnel pool with limited active resources;
· Difficult to build strong brand awareness; and
· Difficult to provide a high quality level of service for a large pool of clients and healthcare personnel.
Bamboos distinguishes itself from its competitors by having a large diversified pool of healthcare personnel of various ranks. This differentiates the Group from niche or smaller players who can only offer services from specific healthcare personnel. This large pool of healthcare personnel also allows the Group to respond to clients’ enquiries quickly and improves the business’ level of competitiveness and reputation within the industry.
Increase in demand for healthcare services with ageing population and shortage of permanent healthcare workforce
The demand for healthcare staffing solution services is largely drive by Hong Kong’s ageing population. According to the Census and Statistics Department, the population is expected to maintain an ageing trend. The proportion of the population aged 65 and over is projected to rise from approximately 14.7% in 2014 to approximately 18.9% in 2021 and approximately 30.3% in 2041.
The chart below sets out the population age 65 and above as a percentage of the total population.
Hong Kong’s ageing population would mean more healthcare services consumption. As such, hospitals and RCHEs need to provide more services to meet the needs, which will in turn increase the demand for healthcare personnel. Healthcare institutions are likely to use temporary healthcare personnel to augment staffing needs. On the other hand, increase in the population of elderly will also create more consumption of home care services as the elderly has higher rate of using nursing services and allied health services.
Separately, the limited availability of full-time permanent healthcare workforce is also a major factor driving the demand of temporary healthcare staffing solution services. There is an on-going shortage of permanent qualified healthcare personnel in Hong Kong, especially registered nurses and enrolled nurses. Existing laws and regulations also make it difficult for large supply of nurses via recruiting foreign healthcare personnel. Currently, less than 6% of nurses in Hong Kong are non-local-trained, as such, the main source of new nurses will be via local training programmes.
Bamboos was founded by Ms. Hai Hiu Chu and Mr. Kwan Chi Hong in 2012. Both founders’ biodata is provided below.
Ms. Hai Hiu Chu, 48Chairman and Chief Executive Officer
· Co-founder and appointed as Chairman on 18 August 2018· Responsible for overall management, strategic development and major decision making for the Group.· More than 20 years of experience in the medical field and the pharmaceutical industry.· President of Hong Kong Health Care Federation· Owns 67.5% stake in the Company
Mr. Kwan Chi Hong, 46Executive Director
· Co-founder and Chairman up to 17 August 2018.· Responsible in monitoring and evaluating the business, strategic planning and major decision making for the Group.· Over 10 years of managerial experience in the public sector, mainly responsible for human resources management including manpower and succession planning, financial resources management including planning and allocating financial resources and exercising control over revenue and expenditure· Resigned as a director on 5 January 2019
(Source: FY2019 annual report)
Interestingly, Singapore listed recruitment firm, HRnet Group Limited, acquired a 7.85% stake in Bamboos in May 2019. The stake was increased later on to 8.00%. The aim of the acquisition is to be a strategic shareholder and form a partnership to further expand and develop its recruitment business in the healthcare sector. This investment by HRnet Group Limited appears to be right on the heels of Mr. Kwan Chi Hong’s exit from Bamboos.
(Source: FY2019 annual report)
Measure 1: Growth in revenue and profits
Bamboos has achieved noteworthy compound annual growth rate (“CAGR”) of 16.55% in revenue and 34.92% in profits for the past 6 years, from FY 2014 to FY2019. Management is optimistic towards the continuous growth of the core business of the Group in view of the ever-increasing ageing population in Hong Kong, numerous on-going hospital development plans and escalating demand for services in both institutional and private healthcare staff solutions.
Measure 2: Profitability
Bamboos’ net profit margin has more than doubled from 23.8% in FY2014 to 49.6% in FY2019. In addition, return on equity ratios are averaging above 25.0% over the past 6 years demonstrating that management is efficient in allocating and converting every dollar of investor capital into profit.
Measure 3: Liquidity
Bamboos operates an asset light business and its balance sheet is conservatively managed. As at 30 June 2019, the Group has cash and cash equivalents of HK$118.7 million, which is equivalent to 29.7% of its current market capitalisation!
Round 4: Dividends payout
Historically, Bamboos has distributed dividends every year since its 2014 listing, but the dividend payout ratios are not consistent from year to year. This is understandable since the Group is growing quickly, it makes more sense for management to reinvest profits into the business.
With a closing share price of HK0.99 as at 13 January 2020, Bamboos is trading at a price earnings (PE) ratio of 10.17, with an indicative yield of 5.05%. Due to its attractive valuation, value investors may wish to keep an eye on the developments of this Group.
An accountant by training, F.I.R.E 2030 is a student of value investing since 2012. She believes that successful investing requires discipline and patience. But with the right knowledge and temperament, ordinary investors can achieve extraordinary results. These articles are her journals on stocks and the investing journey toward financial freedom in 2030.