IPO - International Healthway Corp

IPO - Trading Commences 8 July 2013 at 9 a.m
Following International Healthway Corporation’s (IHC) successful placement and distribution in specie (shareholders of Healthway Medical Corp (HMC) entitled to 82.29 IHC shares for every 1,000 ordinary shares held in the share capital of HMC) exercise, it will commence listing on the Catalist on 8 July 2013 at 9 a.m.

 IHC placement details
 Placement shares (m)
 New shares on offer (m)
 Vendor shares (m)
 Issue price (S$)
 Est. net proceeds to be raised from new shares issuance after deducting cash expenses (S$'m)
 No of shares outstanding post listing (m)
 Market cap post listing (S$'m)
 Adjusted pro forma FY12 core EPS (S cents)
 Pro forma FY12 NTA/share (S cents)
 Adjusted pro forma FY12 core PER (x)
 Pro forma P/NTA (x)
 Source: Company Prospectus, OIR estimates

Company background
IHC’s core business comprises the provision of healthcare services through the management and operation of healthcare facilities and healthcare related-assets, and the development of medical real estate and integrated mixed-use developments. IHC currently has an initial portfolio of 15 assets, with 12 nursing facilities in Japan, 2 medical and commercial centres in Malaysia and China and 1 hospital in China. 

Besides its existing markets, IHC will explore future opportunities in Singapore, Indonesia, Philippines, Australia, and India.

Investment highlights
In our view, IHC offers a unique business model as it not only owns and operates healthcare assets such as hospitals and nursing homes, but also develops and manages integrated mixed-use developments like commercial retail centres and service residences which are integrated with its medical facilities. 

This provides IHC with a more diversified source of income. IHC aims to leverage on the rising affluence in China, aging population in Japan and growing medical tourism trend in Malaysia for growth.

Financial highlights
Based on IHC’s pro forma financials, it registered a 7.1% increase in revenue to S$37.8m for FY12. This was driven largely by higher medical fees from its Wuxi Hospital (+18.0%), while rental income from its Japan nursing facilities was relatively flat (fixed rental income structure).

Reported PATMI jumped 293.2% to S$52.9m due mainly to S$49.0m worth of fair value gains on investment properties in FY12. Adjusting for these fair value gains/losses on investment properties and their tax effects, we estimate that IHC’s core PATMI for FY12 grew 4.6% to S$9.3m.

Utilisation of IPO proceeds
IHC will utilise 35% of its net IPO proceeds for the acquisition of four pending projects. These include a maternity home and commercial development in Shanghai, a commercial centre and service residences in Iskandar and two more senior residences in Japan.

Additionally, IHC has plans to open one of the first medical and wellness resorts in Chengdu.

 Breakdown of use of IPO net proceeds S$'000 Share of net proceeds (%)
 Development and redevelopment of existing projects
 Acquisition of pending projects
 Purchase and upgrade of medical equipment
 Working capital
Source: Company Prospectus, OIR Note: 
Net proceeds are after deduction of IHC’s share of the estimated cash expenses

Sanguine on industry outlook
Healthcare expenditure in Asia-Pacific is expected to nearly double from 2012 to 2018, according to research firm Frost & Sullivan. 

In Japan, ~30.5% of her population is expected to be 65 years old and above in 2025. This suggests potential for higher demand for nursing home facilities as elderly care comprises ~40% of healthcare cost in Japan. 

In China, private healthcare is expected to grow in tandem with rising incomes and the growing number of middle-class. Frost & Sullivan has forecasted healthcare expenditure in China to increase at a CAGR of 14.5% from 2012 to 2018. 

In Malaysia, the healthcare industry is increasingly becoming a medical tourism hotspot.

Key risks
IHC has a strong pipeline of pending projects. As many are still in the planning and development phases, there may be risks of delays in operations and execution risks as the new assets have no track record. 

While the healthcare industry is experiencing robust growth, competitive pressures are also intensifying as illustrated by the aggressive expansion plans of large players such as IHH Healthcare Berhad, Sime Darby and KPJ Healthcare in some of the markets which IHC operates in.

Exhibit 4: IHC's regional peer comparison
We do not have a rating on IHC. Its IPO price of S$0.48 prices it at a core FY12 pro forma PER of 83.1x, which is a significant premium to its peers’ 28.8x historical average, although it commands higher margins than its peers’ mean even after adjusting for exceptional gains (refer to Exhibit 4).

Source : OCBC Research

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