SPH - DBS Research 2017-04-26: Buys Orange Valley for Healthcare Entry

SPH - DBS Vickers 2017-04-26: Buys Orange Valley for Healthcare Entry SINGAPORE PRESS HLDGS LTD T39.SI Orange Valley

SPH - Buys Orange Valley for Healthcare Entry

  • SPH has acquired 100% of Orange Valley Healthcare for S$164m.
  • Acquisition priced at 25x FY15 PE, below SGX listed healthcare peer average.
  • Not a significant acquisition, forecasts remain relatively intact.
  • Maintain HOLD and S$3.39 TP.

What’s New 

SPH acquires Orange Valley Healthcare. 

  • SPH announced that it has acquired 100% of Orange Valley Healthcare Pte Ltd (OV) for c.S$164m from KV Asia Capital. 
  • Orange Valley operates five nursing homes (in Changi, Marsilling, Clementi, Simei and Sims Avenue) with over 900 beds. It also offers ancillary services including meal and catering services, physiotherapy and rehabilitation services, medical supplies, providing nursing & healthcare equipment and consumables. 
  • We estimate that Orange Valley has a market share of 22% based on the number of beds in the for-profit private nursing home market in Singapore.

Our view 

Entry into healthcare sector. 

  • This not a big acquisition relative to SPH’s earnings and balance sheet. However, this acquisition marks SPH’s entry into the healthcare sector, diversifying from the Media and Property segments. 
  • It will also allow SPH to ride on the ageing population trend in Singapore as those aged 65 and above are expected to double in number to 900,000 by 2030.

Valuations at 25x FY15 earnings. 

  • Based on 2015 financials filed with ACRA, Orange Valley's net profit was S$6.5m on revenue of S$35.5m. This works out to a PE valuation of 25x based on historical FYE Dec 15 earnings. The valuation is comparatively lower given that the Singapore listed healthcare peer average trades at over 30x forward earnings. 
  • This acquisition will not impact our earnings estimates and forecasts significantly as S$6.5m represents < 3% of SPH’s c.S$250m earnings. 

Maintain HOLD and S$3.39 TP. 

  • The media business continues to be under pressure by declining adex, and diversifying into another sector would essentially provide some relief to headwinds. 
  • Strategic review of M1 stake is currently ongoing. Potential buyers including China Mobile have reportedly been approached. If successful, it may lead to special dividends. SPH’s stake in M1 is currently worth 4.7% of SPH’s market cap and 16 Scts per SPH share based on our estimates.

Alfie YEO DBS Vickers | Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2017-04-26
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 3.390 Same 3.390