Jul 10, 2019
After divesting its real estate business on 31 Jan 2019, the Thomson Medical Group is finally a pure-play medical business comprised of two major healthcare companies- Thomson Medical Pte Ltd (“TMPL”) in Singapore and TMC Life Sciences Berhad (“TMCLS”) in Malaysia. Specializing in obstetrics and gynaecology and paediatric services, the group is one of the largest listed Healthcare players in Singapore with a market capitalization of around S$1.72 billion.
Healthcare services make up the group’s two main operating segments; hospital operations and ancillary services, and specialized and other services. Hospitals owned and operated by the group include Thomson Medical Centre in Singapore, a leading private hospital specializing in providing O&G and paediatrics services and also tertiary healthcare services in the area of neonatal intensive care, as well as Thomson Hospital Kota Damansara near Kuala Lumpur Malaysia, providing integrated tertiary medical healthcare and specialized fertility services. Under the group’s specialized services, it operates a network of 35 specialist clinics across Singapore, providing services in the areas of women’s cancer, fertility, skin, Chinese medical, as well as dental.
Currently, Singapore has few bonds issued by healthcare issuers, with most notable ones being bonds issued by Fullerton Healthcare. The stability of the healthcare business is a lure for investors. Thomson Medical new issue offers an avenue for fixed income exposure to the healthcare sector. Here are 4 things to consider for this new issue.
The group’s healthcare business is stable and shows moderate growth. After divesting its real estate business, the group should see its lumpy income replaced with much more consistent contributions from hospital and specialist operations in Singapore and Malaysia moving forward.
Figure 1: Key Financials From Continuing Operations As At 31 Dec 2018
1 Adjusted for one-off transactions and non-recurring costs
Earnings are able to cover finance costs, with earnings before interest, tax, depreciation and amortisation (EBITDA) interest coverage from continuing healthcare operations for the year ended 31 Dec 2018 at 2.85x.
One purpose of this new issue is to finance the group’s expansion plans, which mainly comprises expanding Thomson Hospital Kota Damansara from 205 beds to 605 beds by 2020 and building a 500-bed tertiary hospital (Thomson Iskandar Medical Hub) and wellness hub located minutes from the Woodlands Causeway and proposed Rapid Transit System Station at Bukit Chagar.
Expect capital expenditures to remain high moving forward until project completion. This may cause interest coverage to weaken. Also, the group may not receive any cash flows from these investments until the new facilities can be utilized, which could be several years later.
Figure 3: Capital Commitments as at the end of the reporting period
In the short-term, the group will see loans amounting over S$200 million come due, which they will likely have to refinance due to insufficient cash on hand. Management has guided that they seek to pare down debt in the future and not increase it. This may be accomplished through alternative sources of financing such as through equity financing.
The group’s liquidity ratios remain manageable. However, management is cautious of upcoming capital expenditures for their expansion projects, and thus seek to keep liquidity at safe levels.
The largest shareholder of Thomson Medical Group is Peter Lim. He owns a stake of 81.50% as at 31 Dec 2018. In 2019, Forbes ranked him as the 10th richest person in Singapore with a net worth of US$2.5 billion. His vested interest can be viewed as a credit positive and a possible source of financial backing.
In the Singapore bond market, we rarely see issues from the healthcare industry. Thomson Medical Group is now a pure-play healthcare business generating stable income and is seeking funds for refinancing and for expansion plans. Being aware of its maturing debt and upcoming capital expenditures, we believe the business is a healthy one after the divestment of its real estate business. A new bond issue would offer investors a good avenue for exposure in the healthcare industry.
Call us at 6212 1818 for further details.