Wait Out For A Potentially Better Offer
On 13 Sep 22, SMG received a general offer of S$0.37/share from TLW Success, an investment vehicle of its directors. Although the offer represents a premium to the VWAPs, it is below our reduced target price of S$0.45 (14x 2022F EPS), after trimming our 2022 EPS by 15% to account for the weak 1H22 results. Also, the offer represents 11.5x 2021 PE, lower than Singapore O&G’s 16x 2021 PE. REJECT OFFER. We recommend shareholders to wait for a potentially better offer.
• General offer of S$0.37/share from TLW Success. Singapore Medical Group (SMG) received a voluntary conditional general offer to privatise the company at S$0.37/share (cash consideration) or a 1-for-1 new share in the offeror (share consideration) on 13 Sep 2022. TLW Success is equally-owned by SMG’s Non-Executive Chairman Mr. Tony Tan Choon Keat, Executive Director and Chief Executive Officer Dr Beng Teck Liang and Executive Director Dr Wong Seng Weng. TLW has secured irrevocable undertakings to accept the share consideration in respect of approximately 51.67% of the shares. The offer is conditional upon TLW and concert parties holding more than 90% of the total number of shares at the close of the offer (acceptance condition). However, the offeror reserves the right to reduce the acceptance condition to a lower minimum acceptance level (but above 50%), subject to obtaining the consent of the Securities Industry Council of Singapore.
• Significant short-term headwinds. TLW Success has highlighted significant headwinds SMG faces, including a challenging macro-economic and operating environment driven by operational cost increases, a shortage of skilled healthcare labour, and wage increases in the midst of an inflationary environment. The offeror added that while there are still investment opportunities in both organic and inorganic growth, the environment in which such opportunities can be realised will become more challenging in the short to medium term. The offeror is of the view that the offer provides an attractive exit alternative for shareholders who wish to exit their investment in an uncertain economic environment.
• Wait for a potentially better offer. The cash price of S$0.37 represents P/NAV and P/NTA of 1.1x and 4.2x respectively. On a PE basis, it implies an 11.5x 2021 PE and 11.7x 2022F PE based on our reduced estimate. The PE multiple offered is lower compared to the recent takeover offer of Singapore O&G, which offers a PE ratio of around 16x 2021 PE. While the cash price represents premiums of 18%, 19%, 16% and 18% over the volume-weighted average price (VWAP) per share for the 1-month, 3- month, 6-month and 12-month periods respectively, it is 18% below our target price of S$0.45/share (based on 14x 2022F PE). The cash price represents a premium over that for the last three-year period, other than the period between Dec 20 and Apr 21 where SMG announced a potential transaction involving its shares which eventually did not come to fruition.