International Healthway Corporation Limited

International Healthway Corporation ("IHC" or the "Company") is offering 104.35m Placement Shares comprising 58.517m New Shares and 45.833m Vendor Shares at $0.48 each for a listing on Catalist. The market cap post IPO will be around $770.33m. The prospectus is here. I have taken a quick glance at the prospectus and i have to say that it is not an easy read. Information are "all over the place".

The IPO will close on 4 July 12pm and there is no public tranche. I am also not getting any placement shares which really makes me lose the 'motivation' to do this write up. ^_^

Business

IHC is an integrated healthcare services and facilities provider with an initial portfolio of 15 assets in PRC, Japan and Malaysia. It has 2 main business segments:

(1) Healthcare Services (Own manage and operate hospital and nursing facilities)

(2) Own medical and mix use developments (this is probably for rental income) 

You can see that one of their "stated" strategies is to establish listing vehicle as as REIT to enhance shareholder value.

Financial Highlights

The reason why i say the prospectus is not an easy read because it is rather confusing. On one hand you have nice revenue figures and net profit figures here on a colorful page, which show very impressive gains.But if you look at the footnote, it consist of "fair value gains" which is from the property revaluation.

Then on page 43 of the prospectus, you have another set of figures which differs from the "audited figures". Why didn't they have an "audited pro-forma" column? Don't they need one for the listing? (Is it because the listing criteria on Catalist is more lax?)

Assuming the unaudited pro-forma balance sheet can be relied upon, the post listing NTA is around 7.21 cents and the EPS adjusted for service agreement and new shares for FY2012 will be 3.285 cents. That will translate into a historical PER of around 14.6x.  If you refer to page 110 and strip out the investment gain of $49m, the company will make a profit of only $4.9m (versus the $52.934m you see above). If the profit is $4.9m, the historical PER will actually be around 158x (based on enlarged share cap and service agreement being in place).

Use of listing proceeds

The proceeds from the new shares will be used to develop existing and new projects.

Shareholders

The list of shareholders are pretty long and so is the list of pre-ipo investors. It also consist of a fund- Asia Growth II LP and listed company - HMC. The pre-ipo investors paid around 30.84c for their stake.If i were them, i wouldn't mind selling at 48c (it is a 55% increase from their 'entry' price).

Is this a developer or hospital operator?

It starts to get confusing when you see the projects in the pipeline. Some of the projects are pretty interesting, such as IHC Medical & Commerical Centre in KL and IHC Medical and Commercial Centre in Chengdu. (See pictures below). The targeted completion date will be 2016 for both projects (which is still a long way from here). There are some development risks which investors will take on and a lot will depend on whether the management is able to execute.

While i like the medical sector, i am not sure if IHC is a medical or property developer and I don't think dividends will be likely in the next few years as they will need cash to complete the development projects.

What i like about IHC

• Healthcare sector
• Aging population in Asia

My concerns

• Rich valuation (huge premium to NTA)
• High PE (if we strip out the property gains)
• Property development risks
• Share overhang from Pre-IPO and Fund investors.
• Owners are selling out at the IPO price

Valuation

If this is a pure hospital operator, i can use IHH or RMG as a benchmark but then again it is not exactly a hospital operator as the revenue is pretty low.

If they are developing property and mix used developments for healthcare related rental income, perhaps I can use Parkway REIT to benchmark them but their properties still have a long way to go. 

Can i consider IHC as somewhat similar to "Perenial China Retail Trust" where a lot of malls are still being developed? but then it is listing at a premium to NTA!  

No matter which angle i look at it from, the valuation is rich. 

Sentiments-wise, I must say to list under current market is pretty "courageous", we shall see if it is able to defy the current weak sentiments and start the IPO ball rolling.

I was just thinking if there is a public tranche, i would probably have given it a miss as well and the rating will probably range from 0 to 1.  

Happy watching from the sidelines.