What is the news?

• HMI on Friday announced a joint bid with PanAsia Health Limited to privatise HMI by way of a scheme of arrangement that entitles each HMI shareholder to either:
  • Receive for each HMI share either S$0.73 in cash, or
  • One new ordinary share at the same price in PanAsia Health. (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.)
• By partnering with EQT, HMI will have access to a committed capital of up to $150mn to expand more aggressively if needed.
• The scheme will require approval from not less than 75% of eligible votes and sanction of the scheme by the Court.
• With Nam See Investment Pte Ltd and its concert parties abstaining from voting (they hold 39% of HMI’s total shares), only 61% of HMI’s total shares are eligible for voting.
• HMI and EQT said they have received an irrevocable undertaking to accept the offer from HMI shareholders who own an aggregate of 61.8%. Other shareholders who have undertaken to vote in favour of the scheme represents 22.8% of HMI’s total shares.
• Hence, the scheme requires the vote of 22.95% of the remaining eligible HMI shareholders to pass. HMI expects to convene the scheme meeting by September or October 2019 and further details will be sent to shareholders in due course.

Investment Action

• The cash offer of S$0.73 per share represents a premium of 30%, 27% and 25% over the six-month, three-month and one-month VWAP (Volume Weighted Average Price) respectively; and represents a 10.6% premium over HMI’s last traded share price on Friday of S$0.66.
• The offer price is the same as our previous TP of S$0.73 and we believe that it is a fair reflection of the fundamental value of HMI.
• Accept the offer. Ceasing coverage upon successful privatisation. We view the cash offer as a fair opportunity for minority investors to exit. The share price was under pressure due to the softer earnings over the next 2-3 years attributed to Starmed’s gestation costs. The low trading liquidity is another reason to accept the offer as well.

Source: Phillip Capital Research - 8 Jul 2019