Rowsley - a marriage of healthcare and property


Billionaire Peter Lim seems to be consolidating the healthcare part of his sprawling business empire into Singapore-based Rowsley Ltd.

However, the question is, what’s in it for the shareholders of TMC Life Bhd, the listed company he controls in Malaysia?

Going by the share price movements of both companies, it does seem like the proposed restructuring benefits the Singapore entity more than the Malaysian one.

Is this really the case?

TMC Life’s shares had shed some 5% since the deal was announced on Wednesday while Rowsley, a real estate firm, had seen its shares skyrocket - more than double - since then.

Here are some key differences between the two companies. TMC Life is sitting on a net cash position of RM110mil and is slowly, but surely, growing its profit.

TMC Life, which is the smallest public listed hospital operator on Bursa Malaysia, manages a 200-bed flagship hospital called Tropicana Medical Centre in Kota Damansara, Selangor. It also has fertility centres throughout Malaysia.

Rowsley, a property development company, has a net debt of S$91.2mil (RM284.6mil) as at March 31, 2017, and posted a net loss of S$1.6mil (RM5mil) in the first quarter of this year compared to a profit of S$4.8mil (RM15mil) a year ago.

Under the restructuring exercise, Lim is going to inject a 70.36% stake in TMC Life and Thomson Medical Pte Ltd, which is held under his private vehicle Sasteria Pte Ltd.

The question that has popped up is whether the exercise would trigger a mandatory general offer (MGO) in TMC Life.

According to the document filed by Rowsley on Singapore Exchange, the proposed acquisition would not result in an MGO at TMC Life level.

“The relevant authority, (has) ruled that the transactions contemplated in the term sheet will not result in the company or its concert parties having to make a general offer for TMC Life,” Rowsley had stated in an announcement to the exchange.

It is learnt that the proposed exercise did not trigger a MGO at TMC level because there was no change in the control of the company by virtue of Lim also being a 45% owner of Rowsley.

The news of the exercise has however caught the market by surprise. This is because Roy Quek, the chairman of Thomson Medical and chief executive of TMC Life had been reported to have said previously that the Thomson Medical group was eyeing for an initial public offering.

Thomson Medical is the owner of a 190-bed private hospital located at Thomson Road in Singapore which specialises in gynecology and in vitro fertilisation.

Singaporean stockbroker billionaire Lim first emerged in TMC in 2010 with a 29.6% stake that he acquired from TMC’s founder, Datuk Dr Colin Lee Soon Soo.

TMC later saw the emergence of Malaysian tycoon Tan Sri Vincent Tan of Berjaya Corp as a major shareholder although subsequently, Lim bought out Tan’s interest in the company. It triggered a MGO in September 2014, ending with Lim controlling more than 70% stake in TMC Life.

Interestingly, if the proposed deal proceeds, Rowsley also proposes to give current shareholders two bonus warrants for every one share they own, at an exercise price of nine cents.

Also, for each bonus warrant exercised, shareholders will also get one additional warrant - piggyback warrant - that can be exercised at 12 cents.

A sale and purchase agreement is expected to be completed within two months, the company said.

Rowsley will finance the proposed acquisition through the issuance of about 25 million new Rowsley shares at S$0.075 (RM0.23) per share to Lim.

The proposed acquisition to buy Thomson Medical Centre and a 70.36% stake in TMC by Rowley will be an all-share deal worth up to S$1.9bil (RM6bil).

Notably, at TMC’s market cap of RM1.34bil, Lim’s 70.36% stake in TMC worth close to RM1bil. Lim privatised Thomson Medical Centre for around $513mil via Sasteria in 2011.

Question is, what is the valuation of TMC Life shares under the proposed deal?

On a year to date basis, TMC Life shares are down by 16.3%, compared to the local stock market benchmark index FBM KLCI that is up by 7%.

At the current share price of 78 sen a share, TMC Life shares are trading at price earnings (PE) multiple of 66 times, the highest among publicly traded healthcare company on Bursa Malaysia.

The world’s second biggest listed hospital operator IHH Healthcare Bhd is trading at 57.92 times PE. It is operating about 2,140 beds in Malaysia.

While KPJ Healthcare Bhd, the largest private medical hospital operator in Malaysia managing 3,000-bed, is trading at 30.18 times PE.

Although the medical services sector gives a long-term growth opportunity for an aging world, there are other factors supporting TMC Life valuations.

For one, TMC Life is planning to expand its hospital in Tropicana Medical Centre that will see its bed count grow to 600.

And it is expanding a new 500-bed in Johor called the Iskandariah Hospital that is part of its plan for an integrated development that will include a retail mall.

TMC Life would see a vast improvement in its balance sheet, which expects to raise about RM600mil from its warrants conversion that will mature in 2019.

Despite the expansion plan, it remains unclear as to the level of income contribution to be expected from TMC Life’s expansion plans.

It is noteworthy, that TMC has been planning to start the construction of its Iskandariah Hospital since 2015. On this matter, it was reported that TMC Life is still waiting for final approval from the Health Ministry for its hospital project in Johor.

It is understood that TMC Life’s proposed Thomson Iskandar project is located next to Rowsley’s Vantage Bay Healthcare City project.

A market observer reckons that with TMC Life and Rowsley parked under one roof, the plan for both projects could be expedited.

“TMC Life is an expert in healthcare, while Rowsley is in the property development. It make sense for the project to be under one roof,” an anlyst says.

Rowsley’s chairman, Ng Ser Miang, said the proposed acquisition would “bring together” TMC Life’s proposed Thomson Iskandar project in Iskandar, Johor, with Rowsley’s investment in Vantage Bay Healthcare City in Johor.

“We will be able to derive synergy from combining both projects under one company,” Ng said.

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