Divestment of TMC

I just submitted my form to CDP  today to sell off my Thomson Medical Centre shares. Peter Lim is currently holding 85.42% of TMC and it’s no point that I hang on to mine as well. He is probably going to gain full control of TMC and de-list it thereafter.

It’s actually hard to let go a gem of a stock. TMC has always been a star in many investor’s portfolio due to its strong balance sheet, great cash flow and astute management. Looks like I have to hunt for other value companies now….

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TMC FY2010 analysis

Thomson Medical Centre released the FY2010 results on 26th October 2010. TMC did not disappoint as usual. I have updated my analysis to include FY2010’s results.

Its revenues grew 21.2% compared to FY2009. Net profit grew 27.8% for FY2010. The gross profit margin and net profit margin improved as well. GPM is at 43.71% while NPM is very close to 20%.

Looking at balance sheet, it has zero debt with total cash, including fixed deposits, standing at $30.5 million. Its ROE and ROA improved as well. ROE, excluding reserved valuation, stands at 27.6% compared to 21.6% in FY2009. ROA stands at 9.7%. Retained earnings increased to $28 million. Equity stands at $142.1 million and the equity CAGR is at 15.05% over the 5 years.

At the cash flow front, free cash flow is at $20 million for FY2010. Capex expenditure was a mere $808,000 for FY2010. This showcases the great cash generating abilities of TMC!

The intrinsic value of TMC stands at $1.16 when using DCF. I used current year FCF of $20 miilion, discount rate of 5% and cash flow growth rate of 15% (the actual average FCF growth rate is at 22.46%).

My take on Peter Lim’s offer

Peter Lim has offered $1.75 per share. This is at a premium of 51% over the intrinsic value I calculated.  I’m still torn whether to keep my shares or sell it. One part of me wants to keep the shares as TMC is a gem and I feel it has potential to grow even further. The other part tells me to sell as I don’t know if Peter Lim will act in the interest of shareholders just like the management of TMC and whether he will meddle with the daily operations of TMC. A win-win situation would be when Peter Lim doesn’t interfere with the operations of TMC and also provides money for TMC to expand in Singapore following the space crunch that has been around for some time.  Since Peter Lim is buying over a huge stake of 39.34% of the company, he might even have plans to buy the whole company and de-list it. We don’t know what his real intentions are. I will just wait and see for the next 2 weeks how this saga pans out and decide slowly…

BREAKING NEWS: Peter Lim makes General Offer for TMC

“Remiser King” Peter Lim, who was made more famous after bidding to buy over Liverpool, has offered $1.75 a share to buy over Dr Cheng Wei Chen and family’s 39.34% stake in Thomson Medical Centre. Dr Cheng is the founder and largest shareholder of TMC. The offer price is at a 62% premium over the last traded price of TMC. The cash offer will be extended to all the remaining issued shares and when 50% or more of the remaining shares are agreeable to be sold, the shareholders will get $1750 per lot. Owners of TMC will receive a offer letter no earlier than 14 days and no later than 21 days.

I believe Peter Lim has been eyeing TMC for some time and with the stellar FY2010 performance (I will be analysing FY2010 results in another post), it gives him added impetus to be the largest shareholder of TMC. At $1.75, TMC P/E will be at 32.3. Current P/E is at 19.9. Peter Lim might even buy over the whole company and de-list TMC. I’m actually not willing to let go of TMC, even at $1.75, as I feel that it has potential to grow even further. But then again, if Peter Lim decides to buy over the whole company, I would have no choice but to sell my stake. Looking forward to Monday opening to see how the market will react to this news. I believe the share price of TMC will skyrocket on Monday.

Source: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_15B84C10877ACE69482577CB003FD162/$file/Media_Release_Peter_Lim_makes_general_offer_for_Thomson_Medical_Centre_Limited.pdf?openelement

Congrats TMC!

Congratulations to Thomson Medical Centre on being named the runners-up for the “Most Transparent Company Award 2010” for the Mainboard Small Cap category.

This award was handed out yesterday, 5th October 2010 at the SIAS 11th Investors Choice Awards 2010.

TMC space crunch

When I visited Thomson Medical Centre last year for a tour, the first thing that I realised was that TMC was rather small compared to other hospitals. The walkways at some areas were narrow and the ground floor was cluttered. I don’t remember the management discussing about this issue until as recent as last month.

In an interview with CIMB last month, TMC’s CEO and CFO touched on the space constraints of TMC and their plans to address this issue. The CFO said that to accommodate more specialists in TMC, it has to expand. The CEO added that the government has been consulted about getting a suitable site nearby or somewhere within the medical belt area. TMC is also downsizing the kitchen area to free up space for 2 more operating theatres and around 2 delivery rooms.

I certainly hope that TMC will get hold of a suitable area to expand to quickly if it wants to attract more patients and be the runaway leader in the obstetrics and gynaecology (O&G) sector. TMC is already doing very well and this is the only gripe I have about this business.

Hospital Bill Size for Delivery

I came across Ministry of Health’s Hospital Bill Size for delivery for both normal delivery and caesarean section. It is pleasing to know that Thomson Medical Centre (TMC) has the highest total volume and is also amongst the cheapest for both types of deliveries. With high volume, competitive pricing, caring nurses and doctors (read from reviews as I can’t experience it first hand…hehe), hotel-like service and rooms (visited the rooms myself. really has the hotel feel), no wonder TMC is doing very well in the Obstetrics and Gynaecology (O&G) field.

The bill sizes can be viewed at:

http://www.moh.gov.sg/mohcorp/billsizeDetails.aspx?cId=10 for normal delivery

http://www.moh.gov.sg/mohcorp/billsizeDetails.aspx?cId=9 for caesarean section

The bill sizes will be updated monthly.

Usage of Medisave for obstertrics services in M’sia

A few weeks ago I read a report in the Sunday Times with the headlines,  “PRs opting to give birth in Malaysia using Medisave” and I pondered if this will affect Thomson Medical’s market share.

Since 1st March 2010, Singaporeans and PRs could go to any pre-selected 12 hospitals in Malaysia for their obstetrics treatment and it will be subsidized by Medisave. The cost of treatment in Malaysia can be up to 50% cheaper than in Singapore. The hospitals involved in Malaysia in this scheme are owned either by Health Management International (HMI) and Parkway Holdings. Only these two groups can refer patients to its Malaysian counterparts from its hospitals here.

To date, HMI has referred 23 patients to its Malaysian hospitals. Out of these 23, 15 sought obstetrics treatment. Nine have already given birth and six are waiting to deliver. For the Parkway Holdings side, only 4 out of 16 referrals were related to births. This is a very small number compared to the total number of births in Singapore.

I don’t think the number of Singaporeans delivering in Malaysia will increase tremendously to affect TMC’s market share. This is because of the inconveniences faced by delivering in Malaysia.

Although there can be an advantage such as lower costs, it is troublesome to travel all the way to Malaysia just to deliver. Even though the facilities in some hospitals are on par with the Singapore hospitals, travelling and getting used to the way of life there might prove to be a bane. Also, if the newborn is to fall sick in Malaysia, the Medisave will not cover the hospitalization fees. To add on to the woes, parents who want to register their newborn as a Singapore citizen have to travel to Singapore High Commission in KL or Singapore Consulate-General in JB. This will surely be too much of an inconvenience, especially for the mother. The disadvantages far outweigh the sole advantage, lower cost.

I would have to wait for another one to two years at least to see how far this goes and if the trend changing towards deliveries in Malaysia. I will also scrutinize TMC’s FY2010 results to see if there has been an erosion of market share, which is very unlikely in my opinion.