HMI surges 9% on 73-cent privatisation offer; analysts recommend 'accept'

SINGAPORE (July 8): Shares in Health Management International (HMI) are up as high as 9.1% at 2.48pm to trade at 72 cents from its last close on July 4 of 66 cents.

The price surge follows the group's announcement on July 5 that it has received a 73 cents per share privatisation offer from PanAsia Health, valuing the target at $611 million.

PanAsia says the acquisition will allow it to invest in a reputable private healthcare provider with a regional presence in Singapore, Malaysia and Indonesia.

PanAsia is a special purpose vehicle incorporated in the Cayman Islands and indirectly controlled by EQT Mid Market Asia III GP BV.

Under the privatisation scheme of arrangement, HMI shareholders will receive either 73 cents in cash for each share they own or one new ordinary share in the capital of PanAsia at an issue price of 73 cents, provided there is at most 686.2 million HMI shares electing for securities consideration under the scheme.

PanAsia says the offer price represents premiums of 29.7%, 27.4% and 24.8%, over then volume weighted average price (VWAP) of six-month, three-month and one-month period, respectively. It also represents a 10.6% premium over the close on July 4 of 66 cents.

HMI was listed on SGX in 1999 and the stock has only once exceeded the offer price on one trading day -- Nov 14, 2016 -- when it closed at 75 cents.

The scheme will require approval from shareholders owning not less than 75% in value present and voting -- either in person or by proxy -- at the meeting.

PanAsia has received irrevocable undertakings from certain HMI shareholders that represent about 61.8% stake in HMI to vote in favour of the scheme.

Given Nam See Investment (NSI) and its concert parties that hold about a 39% stake in HMI will abstain from voting, the total number of eligible HMI shareholders to vote represents a 61% stake.

As of now, PanAsia says it has no intention to introduce any major changes to the business of HMI, re-deploy its fixed assets or discontinue the employment of the employees of the HMI Group.

However, following successful privatisation, an internal reorganisation or restructuring within HMI may be implemented.

In a Friday report, CGS-CIMB Research analyst Ngoh Yi Sin says, “Given the low trading liquidity and near-term gestation costs from HMI’s recent StarMed acquisition, we see this as an exit opportunity for minority shareholders.”

The research house has maintained its “add” call on HMI with an unchanged target price of 68 cents.

The analyst deems the offer price, which implies 18.1x FY19F EV/EBITDA and 15.5x FY20F EV/EBITDA respectively, as fair as they are on par with current valuations of Asean hospital operators.

Ngoh also see HMI's partnership with EQT as a chance for HMI to access more efficient capital sources and to tap on EQT’s healthcare investment track record to pursue more aggressive expansion plans.

In a Monday report, Maybank Kim Eng analyst Lai Gene Lih also recommends investors take the cash option, as valuation appears fair at 19x FY19E EV/EBITDA versus 18x for Asia ex-Japan ex-China peers and that it is a clean exit as the offeror’s shares will not be listed on any securities exchange.

Maybank has downgraded HMI to “hold” with an unchanged target price of 66 cents, which fully reflects its fundamental value.