Health Management International - UOB Kay Hian 2019-06-18: Potential Share Offer On The Horizon?

HEALTH MANAGEMENT INTL LTD (SGX:588) | SGinvestors.io HEALTH MANAGEMENT INTL LTD (SGX:588)

Health Management International - Potential Share Offer On The Horizon?

  • Health Management International (HMI) announced a possible share transaction with a third party. While discussions have not been finalised, the stock is up 18% since 18 May and 5% in the past week.
  • Current valuation at 25.6x 2020F PE is only at a slight discount to peers’ and this indicates that any potential takeover premium will not be large.
  • We have a BUY for its positive longer-term prospects, with a DCF-based target price of S$0.73.


WHAT’S NEW


Announcement of possible share transaction.

  • HEALTH MANAGEMENT INTERNATIONAL (HMI, SGX:588) announced on 17 Jun 19 that it is in discussions with a third party regarding a possible transaction involving the company’s shares. See HMI's announcements.
  • The discussions are ongoing and the company has not made any decision regarding the possible transaction. There is no certainty or assurance that these discussions will progress beyond the current stage or that any such transaction will occur.

Shareholder ownership in controlling stake.

  • According to HMI’s annual report 2018, controlling shareholder - Dr Chin Koy Nam - has a deemed interest in the company, held by Nam See Investment (Pte) Ltd, her spouse and her children, totalling 322.6m shares (38.5%). Including other substantial shareholders, their total stake was 68.8%.

Other notable corporate actions from stakeholders.

  • To recap, HMI had also conducted a placement to Heliconia Capital Management, a wholly-owned subsidiary of Temasek Holdings in Nov 17. This was for 16.9m ordinary shares, about 2% of the total shares, at an issue price of S$0.65 per share and an aggregate issue price of S$11.0m.
  • Maju Medik is also a stakeholder, which had been issued consideration shares and rights shares, post-consolidation of HMI’s non-controlling stake in its Malaysian hospitals in Nov 16.


STOCK IMPACT


Non-substantial ownership in public’s hands; privatisation a possibility.

  • According to the company’s annual report disclosure, on Sep 18, about 31.9% of the total number of issued shares, excluding treasury shares of the company, are held in the hands of the public. This is quite close to the 10% threshold requirement for continual listing.


EARNINGS REVISION/RISK

  • No change to earnings forecasts.


VALUATION/RECOMMENDATION


Trading near peers’ average; takeover premium may not be too large.

  • After the share surge, HMI is currently trading at 25.6x 2020F PE, compared to peers’ average of about 2x. Any potential large as the stock is only trading at a slight discount compared to its peers. See HMI's share price.

Maintain BUY and DCF-based target price of S$0.73.

  • We still like HMI’s ageing population very much in its favour both Singapore (StarMed Specialist Centre) as well as Malaysia (Regency extension).
  • Our target price is based on the following factors:
    1. 2019-23F free cash flow forecast,
    2. terminal growth of 2.4%, and
    3. WACC of 7.0%


SHARE PRICE CATALYST

  • Accretive M&As.
  • Faster-than-expected ramp-up of StarMed.
  • Potential privatisation.





Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-06-18
SGX Stock Analyst Report BUY MAINTAIN BUY 0.730 SAME 0.730



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