Thomson Medical – BT
Thomson Medical jumps on offer report
DMG advises investors to accept offer by Peter Lim
SHARES in Thomson Medical Centre shot up to $1.76 during trading yesterday before finally closing at $1.75 on last week’s news that private investor Peter Lim had launched a general offer for the company.
The closing price of $1.75 per share represents a 62 per cent increase from the previous close.
However, Thomson Medical wasn’t the only healthcare stock that made significant gains following the announcement – shares in Raffles Medical Group hit a high of $2.38 before ending the day’s trading at $2.30, up 12 cents or 5.5 per cent.
It was announced last Friday that Mr Lim is making an offer at $1.75 per share, which values the company at about $513 million. This comes on the heels of Mr Lim’s purchase – via his investment holding company Sasteria – of a 39.34 per cent stake in Thomson Medical, which he bought from Thomson Medical’s founder Cheng Wei Chen and his family.
Other substantial shareholders in Thomson Medical include Harilela (Singapore) Private Limited – which holds about 17.08 per cent – and Kabouter Management, which holds around 5.01 per cent.
The cash offer is conditional on Sasteria acquiring more than 50 per cent of Thomson Medical.
BT understands that where Thomson Medical’s management is concerned, there are no plans for change.
In a report yesterday, DMG & Partners Research advised investors to accept the offer, pointing out that the offer prices the stock at 30x FY11 P/E. It also has a ‘buy’ call on Raffles Medical, with a target price of $2.40.
Mr Lim’s offer for Thomson Medical comes some months after a takeover battle played out for local hospital operator Parkway Holdings, which has 16 hospitals in Asia. In July, Malaysia’s sovereign wealth fund Khazanah Nasional made a $3.5 billion general offer for the shares in Parkway that it did not own, trumping an earlier $3.2 billion offer by India’s Fortis Healthcare. Fortis’ Malvin-der and Shivinder Singh have since gone on to acquire the healthcare businesses of Hong Kong-based Quality Healthcare Asia (QHA) – excluding QHA’s elderly healthcare businesses – for over HK$1.5 billion (S$250 million).
‘The offer price values TMC at about 29.5x consensus FY11 PER, which is almost on par with Parkway Holdings’ valuation when Khazanah launched a full takeover offer for the company in July this year at $3.95/share,’ Kim Eng said in a research report yesterday. ‘Bearing in mind that TMC’s revenue base in 2009 is 15 times smaller than Parkway’s, it seems like Peter Lim does not make a differentiation between the size and business models of the hospitals as long as he gets a piece of the action in the healthcare sector.’
The report went on to point out that Raffles Medical was ‘probably the only reputable private healthcare player left listed now’, though it also highlighted that Parkway Life Real Estate was another way to invest in the healthcare sector.
Thomson Medical – BT
Thomson Medical jumps on offer report
DMG advises investors to accept offer by Peter Lim
SHARES in Thomson Medical Centre shot up to $1.76 during trading yesterday before finally closing at $1.75 on last week’s news that private investor Peter Lim had launched a general offer for the company.
The closing price of $1.75 per share represents a 62 per cent increase from the previous close.
However, Thomson Medical wasn’t the only healthcare stock that made significant gains following the announcement – shares in Raffles Medical Group hit a high of $2.38 before ending the day’s trading at $2.30, up 12 cents or 5.5 per cent.
It was announced last Friday that Mr Lim is making an offer at $1.75 per share, which values the company at about $513 million. This comes on the heels of Mr Lim’s purchase – via his investment holding company Sasteria – of a 39.34 per cent stake in Thomson Medical, which he bought from Thomson Medical’s founder Cheng Wei Chen and his family.
Other substantial shareholders in Thomson Medical include Harilela (Singapore) Private Limited – which holds about 17.08 per cent – and Kabouter Management, which holds around 5.01 per cent.
The cash offer is conditional on Sasteria acquiring more than 50 per cent of Thomson Medical.
BT understands that where Thomson Medical’s management is concerned, there are no plans for change.
In a report yesterday, DMG & Partners Research advised investors to accept the offer, pointing out that the offer prices the stock at 30x FY11 P/E. It also has a ‘buy’ call on Raffles Medical, with a target price of $2.40.
Mr Lim’s offer for Thomson Medical comes some months after a takeover battle played out for local hospital operator Parkway Holdings, which has 16 hospitals in Asia. In July, Malaysia’s sovereign wealth fund Khazanah Nasional made a $3.5 billion general offer for the shares in Parkway that it did not own, trumping an earlier $3.2 billion offer by India’s Fortis Healthcare. Fortis’ Malvin-der and Shivinder Singh have since gone on to acquire the healthcare businesses of Hong Kong-based Quality Healthcare Asia (QHA) – excluding QHA’s elderly healthcare businesses – for over HK$1.5 billion (S$250 million).
‘The offer price values TMC at about 29.5x consensus FY11 PER, which is almost on par with Parkway Holdings’ valuation when Khazanah launched a full takeover offer for the company in July this year at $3.95/share,’ Kim Eng said in a research report yesterday. ‘Bearing in mind that TMC’s revenue base in 2009 is 15 times smaller than Parkway’s, it seems like Peter Lim does not make a differentiation between the size and business models of the hospitals as long as he gets a piece of the action in the healthcare sector.’
The report went on to point out that Raffles Medical was ‘probably the only reputable private healthcare player left listed now’, though it also highlighted that Parkway Life Real Estate was another way to invest in the healthcare sector.
SingPost – DBSV
More buybacks and M&A?
At a Glance
• Net profit of S$39.7m (-2% yoy, -2% qoq) and quarterly DPS of 1.25 Scents in line
• S$200m raised through note-issue and could be used for share buybacks and M&A; hunt for new CEO is still on.
• We have assumed Singpost can grow dividends by 2% in the long term. Maintain HOLD with DDM- based TP of S$1.17.
Comment on Results
Net profit of S$39.7m (-2% yoy, -2% qoq) was in line. We highlight Singpost’s tight cost control, which almost offset the impact of higher terminal dues (about S$2-3m impact in FY11F) and absence of benefits from job credit scheme (S$5m adverse impact in FY11F) as the job credit scheme expired in June 2010.
Potential M&A may lead to earnings upside. We like to remind investors that Singpost had issued S$200m 10-year notes at fixed rate of 3.5% recently, which may be used towards regional acquisitions. Currently, Singpost has invested about S$37m in higher yielding financial instruments (likes of equity linked notes), used another S$10m for share buybacks in the last quarter while the rest is lying idle in bank-deposits.
Given Singpost’s conservative track record, we would expect the company to take small steps in deploying its cash. As the mail sector is highly regulated in most countries, it is not easy for Singpost to find a good target. Given that the company has a mandate to buy 10% of its shares, more share buybacks cannot be ruled out in our view.
Recommendation
We do not see any risk to its dividends. Maintain HOLD with DDM-based TP of S$1.17 (cost of equity 7.7%, growth rate 2%).
SMRT – DBSV
Growth dampened by higher costs
At a Glance
• 2Q11 net profit of S$45.8m (-13% yoy) in line
• Higher ridership and commercial revenue offset by higher electricity, maintenance and staff costs
• Maintain Fully Valued, TP: S$1.88
Comment on Results
2Q11 in line with expectations. 2Q11 net profit was down 13% yoy to S$45.8m, largely due to higher energy, maintenance and staff costs. Revenue rose 7.2% yoy to S$246m on higher rail ridership revenue (+13% yoy), advertising revenue (+24% yoy), and rental income (+16% yoy). The results were in line with our expectations and on track to meet our full year forecasts.
Higher ridership plagued by lower average fares and low ridership on CCL. Although rail ridership improved on higher train frequency and Circle Line (CCL) stages 1 & 2, average fares declined c.1% as a result of distance-based fares from 3 July 2010. Circle Line continues to underperform as ridership base was 154,000, below the 200,000 target.
Operating income dampened by higher maintenance, staff and energy costs. Energy costs remained high (+24% yoy) from higher consumption, tariffs and diesel price. Staff costs increased (+7% yoy) as jobs credit scheme ended in June 2010. More maintenance works on trains and on ageing taxi fleet increased maintenance expenses (+11% yoy).
Recommendation
Maintain Fully Valued, TP S$1.88. We do not expect any positive revision to earnings as CCL continues to be loss making. Furthermore, operating costs are expected to remain high. However, we expect revenue and ridership to continue to grow on higher train frequencies and CCL ridership. We maintain our earnings forecasts and TP of S$1.88 based on average of 15x FY10F/11F PE and DCF (WACC 7.2%, 1%). Maintain Fully Valued.
Thomson Medical – DMG
Peter Lim makes GO at S$1.75
Peter Lim, Singapore’s billionaire private investor, has acquired a 39.34% stake in Thomson Medical from Dr Cheng Wei Chen and his family (founder and largest shareholder) at S$1.75/share, a 62% premium over the last traded price. The purchase was made via a married deal between Cheng and Lim’s investment holding company, Sasteria. Pursuant to Singapore’s Code on Takeovers and Mergers, the cash offer will be extended to the remaining issued shares and is conditional upon Sasteria acquiring more than 50% of the Group. Given that this prices the stock at a lofty 30x FY11 P/E, a level not seen before, we believe that investors should accept the offer.
Strong interest in healthcare. Lim has been snapping up healthcare holdings in the past few months. He took up a 29.6% stake in Malaysia-listed TMC Life, which specialises in fertility treatment and stem cell banking. He is the second largest shareholder. More recently, he accumulated a 7% stake in SGX-listed Healthway, but has since pared down to a touch below 5%. Lim is likely to seek synergies with his healthcare holdings, particularly Thomson Medical and TMC Life.
Implications for other healthcare stocks. This takeover could have a positive spillover impact on the one other major healthcare player listed on SGX – Raffles Medical Group. At S$2.18, it is currently trading at 24.5x FY11 P/E. We have a BUY on the counter, with a TP of S$2.40.