Take the SGD0.73 Cash Offer; Downgrade to HOLD

• PanAsia Health Limited has proposed to privatise Health Management International (HMI, SGX:588) via a scheme of arrangement at SGD0.73 per share (in cash or new offer of shares), which is a 10.6% premium to the last close.
• We recommend investors to take the cash option, as:
  1. valuation appears fair at 19x FY19E EV/EBITDA (AxJ ex China peers: 18x); and
  2. it is a clean exit as the offeror’s shares will not be listed on any securities exchange.
• Our earnings forecasts and DCF-Target Price of SGD0.66 (WACC: 7.1%, LTG: 1.5%) are unchanged.
• As we believe the current HMI share price fully reflects the fundamental value of HMI, we downgrade HMI to HOLD from BUY.

Transaction Rationale

• The offeror is a wholly owned SPV by EQT Mid Market Asia III GP B.V (EQT GP). In turn, EQT GP is part of the wider EQT group, which has EUR40b AUM across Europe, Asia and US. Transaction rationale are:
  1. opportunity for minority investors to exit amid low trading liquidity;
  2. an avenue for HMI investors to avoid potential share price volatility from the gestation costs of StarMed; and
  3. HMI believes a partnership with EQT will provide access to an efficient source of capital and global healthcare expertise. This allows HMI to expand more aggressively if need be, amid an increasingly competitive landscape.

Irrevocable Undertaking of 61.8% Secured

• The offeror has secured an irrevocable undertaking from ~61.8% of HMI shares. As Nam See Investment and concert parties (NSI) accounting for 39% of total share base will abstain from voting, eligible voting shares are 61%. Save for NSI, eligible votes that have undertaken to vote in favour of the scheme at the scheme meeting account for 37.3% of eligible votes. The shareholder approval threshold is 75% of eligible votes at the scheme meeting.

Deal Metrics

• The scheme consideration implies:
  1. 24.8-29.7% above HMI’s 1-12 months VWAP to the last undisturbed trading day;
  2. 19.4x/16.7x FY19-20E EV/EBITDA, comparable to AxJ ex-China peers of 18.4x/16.6x respectively; and
  3. premium of 10.6%/4.3% to our and consensus Target Price.
• See attached PDF report for peer comparison on regional healthcare stocks.

Source: Maybank Kim Eng Research - 8 Jul 2019