Singapore Press Holdings - CIMB Research 2017-04-25: Foray Into Healthcare

SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings - Foray into healthcare

First healthcare acquisition, of nursing home provider Orange Valley (OVH), valued at 15.2x FY15 EV/EBITDA and 25.3x historical P/E.
Continual revenue diversification could mitigate declining media contribution.

SPH announced its first healthcare acquisition: 100% stake in Orange Valley Healthcare Pte Ltd (OVH) and all the registered trademarks and intellectual property (IP) rights used by OVH for S$164m. It is acquiring OVH from private equity firm KV Asia Capital, which had acquired OVH in 2014.
Established since 1993, the OVH Group wholly owns five subsidiaries, namely Orange Valley Nursing Homes, Singapore Nutri-Diet Industries, Life-Medic Healthcare Supplies, Orange Valley 3-T Rehab and Orange Valley Properties.
Apart from operating five nursing homes and two senior activity centres located near major hospitals or housing estates with high density of senior population in Singapore, OVH also offers ancillary services like providing meals and food catering, physiotherapy and rehabilitation, as well as medical devices and healthcare supplies.
It currently manages over 900 nursing home beds.

The total consideration of S$164m values OVH at 2.3x P/BV, based on its reported net asset value of S$71m as at 31 Mar 2017.
Based on its audited FY15 net profit of S$6.5m retrieved from ACRA filings, this gives us a trailing P/E multiple of 25.2x, more expensive than that the 10-15x asset-light, pure healthcare plays in Singapore have been paying for their investments.
However, on an EBITDA level, this implies a historical multiple of 15.2x, which seems fair against the low-to-mid teens EV/EBITDA of comparable transactions. Regional hospital operators currently trade at 20-25x EV/EBITDA.
We note that as at end-FY15, OVH had a net gearing of 0.44x, and positive operating cashflow of S$7.5m.

We like management’s active approach in diversifying its revenue streams (apart from property and other strategic investments), especially into medical care which has a stable, long-term demand backed by Singapore’s ageing population and dwindling family sizes. We do not rule out SPH making more healthcare-related investments.
We think the acquisition could be funded by a mix of existing cash and debt facilities, given SPH’s cash holdings of S$270m and net gearing of 26% as at end Feb 2017.
Assuming the acquisition is completed by Aug 2017, this could lift our FY18-19F EPS estimates marginally by 2.6%.

We keep our FY17-19F forecasts intact and our SOP-based target price remains unchanged at S$3.36.
Maintain Hold as the stock offers FY17-19F dividend yield of 4.9%, based on 90-100% payout ratio of recurring earnings.

NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2017-04-25

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 3.360 Same 3.360