Second Consecutive Quarter of Positive Adjusted EBITDA as Full Year Revenue Jumped > 250%

• Clearbridge Health (SGX:1H3) announced a strong set of results with revenue reaching a record S$21.5m for FY19, following the completion of two acquisitions in 2019. Profitability also improved with the Company announcing two consecutive quarters of positive adjusted EBITDA – S$0.38m in 3Q19 and S$0.55m in 4Q19. Including fair value losses and other adjustments, reported net loss narrowed to S$11.5m from S$18.9m in FY18.
• The growing track record of positive EBITDA and narrowing losses show that the Company is on track to turning EBITDA positive in FY20F with maiden profitability in FY21F.

Expect More Acquisitions to Drive Revenue Growth and Profitability

• The Dental Focus Group which the Company acquired on 29 August 2019 contributed S$1.83m of revenue in 4Q19, against S$0.52m of revenue in 3Q19.
• PT Indo Genesis Medika (“IGM”), which was acquired on 7 May 2019, continued to show organic growth, with revenue rising from S$3.5m in 3Q19 to S$4.4m in 4Q19.
• We reckon that the Company will likely maintain its pace of acquisitions to drive revenue growth and economies of scale.

Potential Upside From Spread of COVID-19

• As PT Indo Genesis Medika is one of the largest operators of clinical laboratories in Indonesia, we see Clearbridge Health as a potential beneficiary if Indonesia decides to allow more laboratories to test for COVID-19 infections. We understand that COVID-19 testing is currently centralised. Thus far, Indonesia has reported a handful of cases. However, it may stipulate more widespread testing given that foreign media has been questioning the low rate of infection in Indonesia.
• The COVID-19 situation also presents opportunity for the group to distribute test kits in the region.

Expect Further Corporate Actions

• Clearbridge Health listed Biolidics Limited on the SGX in December 2018. According to the Company’s most recent corporate presentation, Clearbridge Health has remarked that it is building a detachable healthcare group with value realisation opportunities.
• Eyeing the Company’s corporate structure, there could be opportunity for the Company to spin-off its Medical Clinics / Centres business or even seek listing plans overseas where valuation could be higher.

“Unicorn” Case Remains Intact

• As with our previous report, we based our valuation on the minimum of peer group price/sales and price/book ratios of 10.18x and 6.50x respectively and averaged the outputs of S$219.2m and S$328.5m respectively to derive a valuation of S$273.8m. In our last report, we did not add back the principal amount of S$11m of certain outstanding convertible bonds to our valuation despite assuming an enlarged share capital of 659.55m shares.
• In this update, we revised our valuation to factor in the higher revenue and book value of Clearbridge Health. While the peer multiples have moderated, we still derived a valuation of S$219.2m (based on P/Sales) to S$328.5m (based on P/B).
• The higher average value of US$284.8m (previously US$201.3m) translates to a higher per share fair value of S$0.430, based on an enlarged share capital of 659.55m shares.
• Key risks include the Company’s lack of track record of positive profitability which may drag on cash flows, if sustained.

Source: Tayrona Financial Research - 3 Mar 2020