• Acquiring OV for S$164m
• Entry to aged healthcare services
• Upgrade to HOLD on valuation grounds

To acquire Orange Valley Healthcare for ~S$164m

SPH announced that it will acquire Orange Valley Healthcare Pte Ltd (OV) for approximately S$164m. OV operates a number of nursing homes and ancillary services like providing meal and catering services, physiotherapy and rehabilitation services, and supplying medical, nursing and healthcare equipment and consumables. OV’s five nursing homes comprise over 900 beds which are strategically located near major hospitals or housing estates with high density of senior populations in Changi, Clementi, Marsiling, Simei and Sims Avenue. Backed by an experienced management team and trained nursing workforce, OV also offers a spectrum of adjacent care services such as home care and respite care.

Sees Long Term Need for Healthcare for Greying Population

SPH’s management indicates that, with the number of Singaporeans aged above 65 expected to double from 450k to 900k by 2030 and as family sizes shrink, there will be a surge in single elderly Singaporeans living alone. This will in turn lead to a strong demand for aged care services ranging from home care, community-based care to nursing homes. This being so, the group sees a strong need for long term medical care for the greying population in Singapore ahead.

SPH also indicated that the transaction is not expected to have a material effect on the net tangible assets or earnings per share of the SPH Group for FY2017. We view this acquisition to be a strategic entry into a desirable niche of the healthcare sector in Singapore but, pending more financial details about the acquisition, opt to keep our fair value estimate of S$3.41 unchanged for now.

That said, the group’s share price has fallen some 14.5% since our downgrade on 18 July 2016 and we now upgrade our rating to HOLD (from sell previously) on valuation grounds.

Source: OCBC Research - 26 Apr 2017