Healthway Medical Corporation Limited

Healthway Medical Corporation Limited is offering 135.5m shares (95.5m New shares and 40m Vendor shares) at 36 cents each. The Company is one of the largest healthcare outpatient service provider in Singapore. (This is like the Raffles Medical Group when it just started out, eventually, it will want to set up its own specialty practices and hospitals to improve the margins.)

Frankly to me, Singapore is already a small and saturated market and the listing is 'inevitable' to tap new capital to expand overseas. As you can see from the revenue, it has grown from S$66.6m in FY2005 to S$84.6m in FY2007. Net profit increased from S$13m to $16.6m over the same period. The joke is that the Company has a pro-forma Net Tangible Liability of 4.02 cents and a net asset value of 9.21 cents post IPO dilution based on 31 Dec 2007. The EPS is approximately Singapore 1.20 cents (assuming service agreement is in place and based on outstanding shares post-IPO).

At 1.20 cents EPS, the IPO is priced at 30x historical PE! Assuming EPS grow by a very "aggressive" 20%, the EPS for FY2008 will be Singapore 1.44 cents and that will translate into a PE of 25x.

For the year ending 31 Dec 2007, Raffles Medical Group has revenue of S$168m and net profit of S$35m. The EPS was 7.36 cents and as of 29 June 2008, RMG is now trading at a valuation of 20x historical. It took RMG a few years and i believed the earnings only 'spike up' after the Raffles Hospital was set up. In my view, the execution of Healthway is still a big question mark and at this IPO valuation, investors are better off parking there money in Raffles Medical Group. In addition, some accounts of the Companies in Healthway are qualified by the auditors... the market cap of Healthway based on the IPO price is $487.8 million (w0w...).

My view is forget about this IPO and put your $ to better valued stocks elsewhere. If you really must invest in this Healthcare sector, you may want to do a more indepth analysis on Raffles Medical Group.