Health Management International - CGS-CIMB Research 2019-07-05: Exit Prescription At S$0.73/share


Health Management International - Exit Prescription At S$0.73/share

  • A scheme of arrangement at S$0.73/share (in cash or new offeror shares) was launched by PanAsia Health Limited for all HEALTH MANAGEMENT INTERNATIONAL (HMI, SGX:588) shares. See HMI's announcement.
  • We prefer the cash option for a clean exit, which is fair at 27.8% above 12-mth VWAP to last undisturbed trading day and 18.1x FY19F EV/EBITDA.
  • We think privatisation may redirect interest in other quality healthcare names.

Joint privatisation offer at scheme consideration of S$0.73/share

  • HEALTH MANAGEMENT INTERNATIONAL (HMI, SGX:588) announced a proposed acquisition via a scheme of arrangement by PanAsia Health Limited (the “Offeror”), a SPV and indirect wholly-owned entity of EQT Mid Market Asia III GP B.V. (“EQT GP”), which is part of the leading investment firm EQT group.
  • The scheme consideration for each HMI share is either
    1. S$0.73/share in cash (the “cash consideration”), or
    2. 1 new offeror share at an issue price of S$0.73 (the “securities consideration”). The offeror shares are in a private offshore entity, and will be subject to a 24-month moratorium, amongst other conditions.
  • If the aggregate number of HMI shares that are elected for the securities consideration exceeds 686.2m (c.81.95% of share base), an adjustment mechanism will apply.
  • Under the scheme arrangement, both the requirements for shareholder approval threshold (at least 75% in value of the HMI shares voted at the scheme meeting and majority in number of HMI shareholders present at the scheme meeting), as well as sanction of the scheme by the Court, must be met.
  • The offeror has received irrevocable undertaking from c.61.8% of total HMI shares, comprising of 39.0% from Nam See Investment (“NSI”) and its concert parties.

Fair but not compelling, amid poor liquidity and start-up losses

  • The scheme consideration of S$0.73/share is 24.829.7% above HMI’s 112-mth VWAP to the last undisturbed represents a 106% premium to See HMI's share price history. It is also 4.3-7.4% higher than our/consensus target prices.
  • The offer price implies 18.1x FY19F EV/EBITDA and 15.5x FY20F EV/EBITDA (36.2x FY19F P/E/ 27.5x FY20F P/E) respectively, which we deem fair as they are on par with current valuations of ASEAN hospital operators.
  • Given the low trading liquidity and near from HMI’s recent StarMed acquisition, we see this for minority shareholders. The partnership with EQT will also allow HMI to have access to more efficient capital sources and to tap on their healthcare investment track record to pursue more aggressive expansion plans.
  • No change to our ADD call and S$0.68 Target Price (DCF, 7% WACC).
  • Downside risks: lapse of offer and slower ramp-up in StarMed operations.

NGOH Yi Sin CGS-CIMB Research | 2019-07-05
SGX Stock Analyst Report ADD MAINTAIN ADD 0.680 SAME 0.680