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Singapore Institute of Advanced Medicine Holdings Ltd

Singapore Institute of Advanced Medicine Holdings Ltd ("Sam" or the "Company") is offering 114m new shares comprising 4.415m Public Offer Shares and 109.585m Placement Shares at $0.23 each for a listing on Catalist.  The Company aims to raise $26.2m and the majority of the proceeds will be used to repay debt and the balance for working capital. The market cap based on the IPO price is $231.8m and the offer will close on 14 Feb at 12 noon and starts trading on 16 Feb 2024 at 9am.   Principal Business SAM is a healthcare service provider using advanced technology for early and accurate diagnosis to detect and treat cancer, neurodegenerative and cardiovascular diseases.  SAM has strategic collaborations with public and private institutions for research and clinical work.  SAM's goal is to create a comprehensive one-stop ambulatory cancer centre to undertake the challenges to fight cancer and is one of the first to adopt proto beam therapy treatment in Singapore. Fi

HC Surgical Specialists Limited



HC Surgical Specialists Limited ("HC Surgical" or "the Company") is offering 30m placement shares at $0.27 each for a listing on Catalist and there is no public tranche. The offer will close on 1 Nov 2016 at 12pm and commence trading on 3 Nov 2016 at 9am. The market cap is S$39.5m based on the IPO price.

The Company is a medical services group primarily engaged in the provision of endoscopic procedures, including gastroscopies, colonscopies and colorectal procedures in Singapore. Actually you can literally "see what they do" from the Company's logo isn't it? I haven't seen a Company that adopts a digestive system as its logo before... imagine if it is a men's health clinic listing next? lol.

Shareholders

HC Surgical is controlled by both Dr. Heah Sieu Min (43.73%) and Dr. Chia Kok Hoong (23.75%) post the issuance.

Holding Structure


Financial Performance


Assuming the service agreement is in place for FY2016 and excluding the listing expenses, the adjusted profit and EPS based on the post IPO shares will be $2.93m and 2 cents respectively. This translate into a listing PER of around 13.5x. 

The Company also provided a pro-forma statement given the restructuring that took place and under that scenario, EPS improved by 21%. Assuming EPS for FY2016 improved to Singapore 2.42 cents, the listing PER will be around 11x


Use of proceeds


Dividends

The Company intends to pay at least 70% of its profit after tax as dividends for FY2017, FY2018 and FY2019. Assuming EPS is 2 cents, it translates into a yield of 5.1%, which is very decent.

What I like about the Company
  • Listing at an attractive valuation vis-a-vis its peers
  • Strong alignment of interest between founders and investors
  • Attractive healthcare sector that is still "in favor" on SGX
  • Public shares are probably placed to friends and family and tightly controlled
  • Good doctors - Both received many "service awards" and Dr. Chia, in particular, was awarded the Courage Fund Award for SARS cases in 2003
  • The two founding doctors didn't pay themselves huge salary but have in place a profit sharing structure that is tied to the profit generated
  • Stable cash flow generative business with no debt
  • Dividend paying company 
Some of my concerns
  • Key man risk - what if the two surgeons are no longer around? Can the brand continue to survive without them?
  • Too much control held by 2 men. While this is fine for the short run (and unless they are looking for a trade sale at a much higher valuation), it may not be healthy for the long run
  • There will be many post IPO acquisitions as it is the fastest way to grow, execution will be key in integrating good surgeons into the system and failure to retain these talents will disrupt the business. It is probably not easy to manage a team of high ego surgeons? 
  • Singapore market is quite small and competitive unless they expand overseas. While the Company has signed a MOU with Vietnam, it is not easy to remit money "out of Vietnam" 
  • Too much focus on stomach and colon? Hopefully their "logo" will not restrict their expansion of services into other areas.
  • It is quite rare to see that there are no lawyers or accountants on the board, they may want to add more diversity to its board
Valuation

Singapore O&G launched its IPO back in 30 May 2015 and has done very well since. The "3 chillis" write up is here.  It is currently trading at FY2016 PE of 22x and FY2017 PE of 18.7x. The table is summarized below. I didn't even use Raffles Medical Group or Q&M as they are now trading at 33x and 38x PE respectively.

HC Surgical is attractively priced vis-a-vis its peers. 

Assuming EPS grow by 20% in FY2017 (i am guessing), it will translate into a EPS of 2.4 cents. 

Based on the PE multiple of 20x-25x (being conservatively here), it would translate into a fair value range of 48 cents to 60 cents

This Company is attractively priced and managed by doctors with a heart. They could have definitely asked for a higher valuation. It's a 3 chillis for me.



Comments

Anonymous said…
Hello Mr IPO,

What is your guess for its opening?

Thanks.

Regards
Mr. IPO said…
Probably double.
Anonymous said…
weird that the prospectus does not publish the credential of their cfo. only get the AC to attest to her credential. will she be able to cope with complex reporting later on when the group expand?

2 doctors basically operate their own clinics independently. will they be able to work together as 'partners' in the listco?

who will assist the company in their due diligence process in the acquisitions? the company doesnt seem to have corporate finance capabilities. surely the doctors who are surgeons themselves do not have the time to expand their business as they cannot afford to have distractions from their responsibility as doctors




Mike Ho said…
Hi Mr IPO,

Thanks for the good write-up!
May i know, will you be buying this stock?
If yes, at what price?

Thanks
Mike Ho
Unknown said…
This comment has been removed by the author.
Anonymous said…
Hmm Dr Heah is 52 yrs old and Dr Chia is 56 yrs old

If you are going on 20x PE and assuming all circumstances remain, does it mean that the company has to make the same profit for the next 20 years to support the price of 20x PE? So both doctors have to continue to perform surgeries well into their 70s? Unless there is a good succession planning in place, I don't see that happening.