Asian Healthcare Specialists Limited ("AHS" or the "Company") is offering 46.9m Placement Shares at 23 cents each for a listing on Catalist. The Company will have a market capitalisation of $66.7m based on the IPO price. The IPO will close on 18 April at 12pm and starts trading on 20 April 2018 at 9am.
AHS is an orthopaedic healthcare specialist and provider offering treatments for the common medical problems listed below:
Principal Business
The Company was established in 2013 by its founding medical specialists - Dr. Chin Pak Lin (CEO), Dr. David Su and Dr. Tan Chyn Hong with a vision to create a one-stop specialist clinic. In 2015, Dr. Yue Wai Mun (CMO), a specialist in spine, joined the Company and was joined by Dr. Mohd in 2017.
The Company currently have 5 senior and experienced orthopaedic medical specialist operating at 4 clinics under "
The Orthopaedic Center" brand across Singapore and aims to be a one-stop integrated healthcare provider for all musculoskeletal-related medical care and post-surgery rehabilitation related services such as physiotherapy and pain management.
Investment Highlights (per the prospectus)
Financial Highlights
According to the prospectus, the Company would have made an adjusted profit after tax ("PAT") of S$4.5m in FY2016 and FY2017 if the Service Agreements were in place. The adjusted PAT is is similar to the pro-forma figures which indicate the likely profitability of the Company going forward. The docs will then be compensated via the dividends declared and distributed. While the doctors are taking a "pay cut", I think this arrangement work out nicely as it aligns the interest of the founders with shareholders and also help them gain some tax arbitrage as the corporate tax rate is lower than the highest personal income tax rate by 2%.
Looking at the post-placement adjusted EPS of 1.54 Singapore cents, the Company is being valued at 14.9x PER for FY2017. According to the prospectus (page 31) the NAV per share is around 3.64 cents.
The Company intends to pay no less than 50% of its profits attributable to shareholders as dividends. Assuming EPS remained at 1.54 Singapore cents, the dividend to be paid out will be 0.77 Singapore cents, translating into a yield of 3.35% (0.77 cents divided by 23 cents). That is quite a decent yield.
Business Strategies and Future Plans
The Company believes that the listing will enhance its public image and enable it to raise funds for future expansion.
Use of Proceeds
The Company intends to use the proceeds raised for business expansion.
Shareholders
Looking at the table above, the Company will be tightly controlled with 81.3% of the shares held by the 4 founders in equal proportion. The public will own about 16.2% of the Company.
What I like about the Company
- One-stop medical centre specialising in orthopaedic, sports and trauma services - I like the healthcare sector where there is always demand for good quality services. If the Company is able to provide a one-stop and comprehensive set of services ranging from surgery to physio therapy treatment post the surgery, this will enable the Company to stand out among its competitors
- Strong alignment of interest - The interest of Dr Chin Pak LIn, Dr Yue Wai Mun, Dr David Su and Dr Tan Chyn Hong, through AHS Investments Holdings Pte. Ltd., have been voluntary locked up for 5 years (steps down gradually over time). This is to signal to investors the interests are aligned for the long term. (See page 58 of prospectus)
- Dividend paying - The Company intends to pay no less than 50% of its net profits attributable to shareholders for FY 2018 and FY2019. This translate into a decent yield of about 3.35%
- Decent valuation - While the healthcare sector is generally trading at rich valuation of at least 20x PE, the IPO is valued at 15x PE (see peer comparison on fair value below)
- Ageing demographics and rising income levels will help spur demand for quality healthcare care services and the Company is well positioned to capture this demand
- Ability to provide in-depth subspecialised services and complex revision surgery- According to the prospectus, there are only 2 ROBODOC system in Singapore and one of them is being utilised by the CEO, Dr. Chin Pak Lin. The ability to provide advanced healthcare services is important
Some of my concerns
- Key man risk - Given the asset light strategy, the Company is heavily dependent on its key medical specialists as well as skilled healthcare professionals. Given the founders are also doctors of the various clinics, the ability to work together towards a common goal is mission critical for the Company. The key man risk will be the doctors falling out with one another
- Competition - The Company faces competition from both public and other private practices. While there is competition, the Company has "proven" that it can generate good profits over the last 3 years
- Small revenue base - The company is still young with a small revenue base
Fair Value (Peer Analysis)
Looking at the comparables listed on SGX, i think the closest peers will be HC Surgical Specialists, Singapore O&G and ISEC Healthcare in terms of market cap and profitability. These counters have also performed well post listing.
HC Surgical is currently up 148% since launch. My write up can be found
here.
Singapore O&G has its ups and downs but is still up 292%. My write up can be found
here.
ISEC Healthcare debut well but the share price has since dropped from its high. It is now back to its IPO price. My write up is
here.
Assuming the Company trades at its peers valuation of between 20-24x and without taking into account any potential growth, the Company's fair value range is between 30 cents to 37 cents.
Given the small float, tightly controlled placement and discount to peers, i believe this Company will perform at launch (barring any trade wars or poor sentiments). This is a 3 chilli ratings for me for both short and long term. The only "grievance" for me is there is no shares for the retail investors.
Do note that i am vested from the placement tranche.
Polling Time if you are interested ...
here
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