ISEC Healthcare Ltd ("ISEC" or the "Company") is offering 70m placement shares at 28c each for a listing on Catalist. The IPO will close on 23 Oct and list on 28 Oct. There is no public tranche. The market cap based on the IPO price will be around $128.38m.
The Company is a medical eye care provider with ambulatory surgical centres in Malaysia and Singapore. Actually the term sheet is pretty comprehensive, you can access it here.
ISEC will use the IPO proceeds mainly for expansion into the Asia Pac region.
The EPS for FY2013 after adjusting for the enlarged share capital and service agreement will be around Singapore 1.22 cents and that translate into a listing PER of around 22.9x, which is fairly valued.
Q1 2014 continued to show a strong growth over the prior quarter with profit reaching around 1.8m versus 1.27m against Q1 2013 (40% growth).
Assuming net profit for 2014 grow by on 25% (I am not privy to any forecast), the net profit will reach $7.08m. That translate into EPS of around Singapore 1.54c or 18x PE.
The Company intends to distribute at least 25% of its net profit attributable to shareholders as dividends.
What I like about the business
- Resilient healthcare sector with specialized services
- Helmed by a team of experienced specialist doctors
- Asset-light, strong cash flow model
- Demographics of ageing population with increased demand and the means to pay for higher quality private health care
- Strong alignment of interest with the management team and doctors who owns more than 60% of the Company and they are not cashing out at IPO.
- IPO shares are purely for new shareholders and the cash is going into the Company for expansion. In fact 84.7% of the shares will be under moratorium for 6 months! (page 58 of prospectus).
- Low free float of only 15%
- 3 Independent directors are subscribing for 400,000 shares each
- A decent dividend payout policy
Some of my concerns
- A people business. You need a strong team of dedicated doctors to continue the growth
- I would prefer a big 4 auditor
- High listing valuation
- Low liquidity post IPO
One of the director, Mr. Sitoh Yih Pin is also the director on Talkmed Group.
Talkmed Group IPO at 20c and rocketed to $1. The only difference is Talkmed was priced at a much better valuation back then but the share price still moved up strongly post IPO except that liquidity will dry up over time.
To be honest with you, i quite like the Company despite the high valuation. The management probably consulted some Fengshui Master. It is priced at 28c, it will list on 28 Oct and the market cap is $128.38m. I will give it a 3 chilli rating purely for this :@P. This coupled with the low free float means that the company will be tightly controlled and should do well post listing despite the current market correction.
I will give it a 2 Chilli rating because it doesn't have a public float and retail investors like us can only watch from the side.