• EQT, a leading European investment firm, and Health Management International (HMI, SGX:588) have jointly proposed to privatise HMI by way of a scheme of arrangement at S$0.73/share. The cash offer is a 30% premium to its 6-month VWAP and represents an implied 2020F PE of 29x, above peers’ average of 26x.
• We recommend shareholders accept the cash offer.

What’s New

Proposed privatisation at S$0.73/share.

• EQT, a leading European investment firm, through a special purpose vehicle, has made a scheme of arrangement offer to privatise Health Management International (HMI, SGX:588). The scheme consideration is either:
  1. S$0.73/share in cash; or
  2. securities consideration in the share capital of the offeror subject to an adjustment mechanism. The offeror’s shares are in a private offshore entity and will not be listed on any securities exchange on the date of settlement of the scheme arrangement.

Cash offer premium.

• The cash offer of S$0.73/share represents a 10.6% premium to its last traded share price of S$0.66 (4 July) and a 14.1% premium to the undisturbed share price (14 June) before the company released the announcement in respect of a possible transaction. The cash offer is also a 29.7% premium to its 6-month VWAP to the last undisturbed trading day. See HMI's share price history.

Undertakings from major shareholders.

• Shareholders’ threshold the scheme is at 5% of HMI shares, with a majority of the present. Shareholders undertaken vote favour of the (excluding Nam See Investment and concert obliged abstain) make 37.3% that be voted the scheme. The has irrevocable undertakings from major HMI shareholders 618% of HMI shares.

Delisting of HMI.

• The is the view that intensifying among players, HMI would significant for potential, and listing entail costs potential dilution shareholders. By EQT, would access to an source of.

Stock Impact

Fair and timely offer.

• At the offer price, the implied 2020F PE is 29.0x, which is a 10.1% premium to peers’ average of 26.1x. Given HMI’s expansion plans are in the early stages of commencement, with its Singapore-based specialist centre, StarMed, still facing gestation costs (9MFY19: operating loss of RM6.6m) and Regency Hospital extension only starting construction with a targeted commission in 2021, we think it will take some time before value is realised.

Substantial holders undertaken to vote.

• We had noted in our report “Health Management International - Potential Share Offer On The Horizon?” on 18 Jun 19 of the possibility of a share offer. Given substantial shareholdings in majority ownership, we deem the number of shares undertaken to approve the scheme to be substantial.

Earnings Revision / Risk

• No change to our earnings forecasts.

Valuation / Recommendation

Accept offer of S$0.73.

• Given the longer-term outlook of HMI and the premium offered, we deem the offer price of S$0.73 at a 29.7% premium to its 6-month VWAP to the last undisturbed trading day is fair. The low liquidity is also an attractive factor in accepting the cash offer.
• In addition, we view the alternative of holding private shares with uncertainty of future re-listing to be undesirable. We recommend shareholders accept the cash offer of S$0.73.

Source: UOB Kay Hian Research - 8 Jul 2019