Basic
Details
Sector:
Aged Care Services (Private Nursing Homes)
Competitors:
Orange Valley, Lee Ah Mooi etc
Date of
Listing: 19 April, 9am
Application
Start Date: 10 April 2021, 7am
Application
End Date: 15 April 2021, 12pm
Implied Market
Cap upon Listing: 71.96 million
Implied FY
2020 PE: 17.9
Implied Trailing
PE: 11.65
Predicted
PE: 19.7 (Due to listing expenses)
Reasons to
like this company
Resilient Sector – As the newer younger generation come into the
picture, a changing type of taking care of elderly might occur and as the
generation gets older, with lesser birth rate it means that the chances of
elderly without kids is higher and these nursing homes come into the picture.
Rain or Shine, economic crash or not, the demand is likely there unless a mass
covid kills all elderly or something along that line.
Good Growth by 2025 – For anyone that can afford to wait, 16% increase
in bed capacity from 2023 as well as a 44% increase in bed capacity from 2025.
Hence this translates to a growth of 73% by 5 years. Which is good for a small market
cap size company.
Asset Light Model – This meant that it does not have to worry about the
land and its depreciation and instead offers a relatively low operating
leverage.
Investment Property could be undervalued – The freehold land in Malaysia
has not been revalued and a sale could provide good value. Currently rented to
Columbia International School it seems.
PE not high by current market standards – This is in line with the markets
at a higher side and the feel-good factor, the current PE does not look
over-priced in this aspect
Recent IPOs all doing well – Surprisingly GHY Culture, Astrea Bonds,
Credit Bureau Asia, Aztech have held up well on debut.
High ROE Business – Generating 3.8 million with 19.1 million of equity,
a rather high ROE of 19.8%.
High Ownership Retained – Owner retails 80.5% of the company post listing.
Indicative that its not so much selling out the company and cashing out
intention.
Reasons to dislike
this company
Delist and Relist Logic – Having delist back in 2012 at a market cap of 80.4
million and now relisting at a lower market cap, does not seem to paint a rosy
picture for the business when it has been profitable the past 3 years.
Falling Profitability – Unfortunately, the company has profits fell from
5.4 million to 3.8 million from FY 2018 to FY 2020.
Staff Cost – With the recent news of healthcare staff getting a pay
raise, this effect is likely to affect the company which has seen increased
healthcare staff cost in the previous few years as well. With lesser staff this
year (9), staff cost increased instead. All these point to a rising cost
upcoming. As staff who feel that they are not paid well might consider job
hopping to hospitals who should be hiring due to covid-19 and as well as
vaccination drive.
Interested Party Transactions – A lot of private nursing homes run by the coy are rented
from the owner and a sum is paid. As such, while the owner is unlikely to slap
himself by charging an extra high amount, the same can be said for transparency
as the owner owns the home charging rental himself while shareholders have a
piece of being the rent payer.
Investment Property Yield too low – Rental Income of 216 000 in FY 2020,
against a land value of 8.3 million. This translate to a yield of 2.6% which I am
not sure if its good at all.
Conclusion
I can see a
thesis for making a punt to apply and to make a quick profit on the listing
day. However, I cannot see a long-term prospect especially with its staff cost heading
upwards while its revenue is not heading upwards. Most of the 6 months FY 2021
results have been boosted by Job Wage Support which is not going to be repeated
in subsequent quarters. The earnings will likely decrease soon before heading
up again in 2025 or 2026. However, in the meantime, it is likely to experience
a depressed share price due to its earnings.
Having said
that, opportunity can arise as it wins more Build-Operating-Lease contracts
from the government and expand from there. However, given by its current
prospects, it’s not rosy.
Lastly, SPH
made the acquisition of Orange Valley at an implied book value of 2.3 times. However,
it subsequently wrote off some of its book. This implied that at 2.3 times it
is over-valued. However, the listing this time is at a higher book value of
around 2.5 times. Surely its over-priced as well?
(
a picture says a thousand words but a word from the picture is enough to say the story)
