IPO Note

65, Braybrooke Place, Colombo 2, Sri Lanka

research@bartleetreligare.com, +94 11 5220200

09th March 2015

BRS Research

IPO Opinion: Singhe Hospitals Limited (SIHL)

Fails our health check: Do Not Subscribe
SIHL, a 50-bed hospital with a 24 hour OPD, pharmacy and laboratory is planning to
raise LKR 250mn. The funds will settle loans amounting to LKR 170mn and for capital expenditure of LKR 80mn. The reduction in loans will reduce finance costs by
~63%. The LKR 80mn capex will be used to purchase machinery, set up three micro
labs, to set up an eye surgical unit, and to increase pharmacy stocks etc. Although
we only see EBITDA positivity in FY 2015E, the NPAT remains negative until FY
2016E. We have arrived at a DCF based target price of LKR 2.00 given the absence of
profits and recommend investors not to subscribe.

Nikita Tissera Head of Research

Nusrath Mohideen Assistant Manager
Sonali Weragoda Research Analyst

IPO Summary
Number of shares issued :
100mn ordinary voting shares
Issue price: LKR 2.50 per share
Total IPO proceeds: LKR 250mn
Issue opening date: 12 March 2015

Key Financials (LKR mn)

For the year ended 31 March

2013

Revenue

33

Revenue growth (%)

na

Gross profit
Gross profit margin (%)

13

2014

2015E

2016E

164

212

273

353

29.0%

29.1%

29.2%

391.9%
70

2017E

127

178

229

60.0%

65.0%

65.0%

38.5%

42.8%

(45)

(62)

EBIT growth (%)

na

-14.0%

-15.7%

35.3%

16.5%

EBIT margin (%)

-134.0%

-37.9%

10.0%

15.0%

15.0%

(108)

(132)

(16)

15

28

EBIT recurring

Net profit
Weighted average shares diluted (mn)
BRS EPS adjusted (LKR)
Debt
Gearing (%)

(7.19)

(4.69)

21

41

53

17

41

298

398

398

(0.05)

0.04

0.10

Shareholders

A M Weerasinghe

0.13%

K K D P A Piyadasa

0.09%

A M D H N Weerasinghe

0.00%

Public holding - Voting

25.1%
EPS

358

322

272

102

62

1.00

91.7%

53.5%

45.0%

14.5%

8.8%

0.00

Shareholder's equity

32

280

333

600

641

-1.00

NAV per share (LKR)

2.15

9.97

1.12

1.51

1.61

-2.00

Source: Prospectus and BRS Equity Research

74.67%

K B Kannangara

2013

2014

2015E

2016E

2017E

-3.00
-4.00

Struggling with low occupancy and high capex cycle

SIHL appears to have a blended occupancy of about 40% in the multiple classes of the
50 rooms. We forecast the pharmacy, laboratory and admissions to be the main revenue centres with revenue contributions of 35%, 22% and 15% each. Although the IPO
funds will be used to settle the LKR 170mn loans and to prop the high initial stage
capex, we do not see SIHL coming to profitability until FY 2016E.
Competition comes from the state and free of charge
The private healthcare space in SL generally has a long payback period, and we feel it
could get longer when it comes to outstation hospitals that principally depend on
pharmaceutical and laboratory services for contribution. In SL, the patients generally
show loyalty to the specialists as opposed to a healthcare provider, so the bargaining
power of specialists is much higher too. Therefore, the medium term SIHL would be
but a higher end lab tests/ pharma provider in the area.
Lowest value listed healthcare offering
SIHL when compared to the listed healthcare space in SL, offers the lowest value
given its lack of profitability in the medium term comparables. The only point of attraction we see now for SIHL is the low price point the IPO comes at. However, we
feel the SL investors are maturing in and would look for value.

-5.00
-6.00
-7.00
-8.00

Utilization of IPO Proceeds

Capital expenditure
LKR mn
Laporoscopy machine
10
Mammograpy machine
7
Micro labs - Balangoda, Avissawella, Embilipitiya 26
eye surgical unit
12
Customer car park
10
Pharmacy stocks
15

Loan repayment
Finance Institution

Type

Bank of Ceylon

Term Loan

LKR (mn)
140.00

Bank of Ceylon

Overdraft

30.00

For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the endPage
of this
1 report.

IPO Note

Revenue Comparison (LKR mn)

EBIT Margin Comparison (%)

LKR mn

09 months FY 15

09 months FY 15

9000

60%

FY 14

FY 14

8000

40%

7000
6000

20%

5000

0%
Singhe

4000

ASIR

AMSL

CHL

LHCL

NHL

-20%

3000

-40%

2000
1000

-60%

0
Singhe

ASIR

AMSL

CHL

LHCL

NHL

NP Margin Comparison (%)

-80%

ROE (annualized) Comparison (%) (FY 2015 )

09 months FY 15
60%

25.0%
20.0%

FY 14

40%

15.0%

20%

10.0%
5.0%

0%
-20%

Singhe

ASIR

AMSL

CHL

LHCL

NHL

0.0%
-5.0%

-40%

Singhe

ASIR

AMSL

CHL

LHCL

NHL

-10.0%

-60%

-15.0%

-80%

-20.0%

-100%

-25.0%
-30.0%

EPS Comparison (LKR)

EBIT Margin (%)

40%
LKR

FY 15 (annualized)
FY 14

20%
0%
-20%

2013

2014

2015E

2016E

2017E

4
-40%
2

-60%
-80%

0
Singhe

ASIR

AMSL

-2

CHL

LHCL

NHL

-100%
-120%

-4
-6

-140%
-160%

Source: Company Prospectus and annual reports

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IPO Note

Income Statement
Year Ending 31st March
LKR' mn

2013

2014

2015E

2016E

2017E

33

164

212

273

353

YoY growth %

na

391.9%

29.0%

29.1%

29.2%

Cost of sales

(20)

(94)

(85)

(96)

(123)

Revenue

Gross profit
Gross profit margin %

13

70

127

178

229

38.5%

42.8%

60.0%

65.0%

65.0%

446.2%

80.8%

39.8%

29.2%

YoY growth %

Other income

SG & A Expences

(58)

YoY growth %
Depreciation and amortisation

(19)

EBIT including non-recurring items

(45)

YoY growth %

(132)

(106)

(137)

(176)

129.4%

-20.1%

29.1%

29.2%

(40)

(39)

(41)

(42)

(62)

21

41

53

39.1%

-134.0%

-67.0%

29.2%

Non- recurring items

EBIT excluding non-recurring items

(45)

(62)

21

41

53

39.1%

-134.0%

-67.0%

29.2%

YoY growth %
EBITDA excluding non-recurring items

(26)

(22)

60

81

95

na

-14.0%

-15.7%

35.3%

16.5%

-78.4%

-13.7%

28.5%

29.8%

26.9%

-134.0%

-37.9%

10.0%

15.0%

15.0%

Net Finance Cost

(50)

(52)

(27)

(14)

Finance income

0.2

0.1

(0.0)

3.2

Finance cost

(51)

(52)

(27)

(17)

(7)

Profit before tax

(95)

(114)

(6)

27

51

Income tax expences

(13)

(18)

(10)

(10)

(10)

Net profit for the year

(108)

(132)

(16)

17

41

Reported EPS per share (Note 1)

(7.19)

(4.69)

(0.05)

0.04

0.10

BRS EPS adjusted (Note 2)

(7.19)

(4.69)

(0.05)

0.04

0.10

YoY growth %

EBITDA Margin %
EBIT Margin %

(2)
5.4

Source: Company Financial Reports and BRS Equity Research

Note 1: Based on earnings as reported (unadjusted for non-recurring) share data adjusted for splits
Note 2: EPS adjusted for share split, consolidations and non recurring information

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IPO Note

Statement of Financial Position

As at 31st March
LKR' mn

2013

2014

2015E

2016E

2017E

ASSETS
Non-current Assets
Property, plant and equipment

618

697

742

770

798

622

700

745

773

802

10

12

15

16

25

Trade and other receivables

12

Cash and cash equivalents

(2)

108

71

16

18

17

132

108

638

717

762

906

910

Stated capital

150

434

598

848

848

Revaluation reserves

Intangible assets

Current Assets
Inventories

Total assets

Equity and Liabilities

Equity attributable to equity holders of parent

Retained earnings
Total equity

95

(118)

(249)

(265)

(248)

(207)

32

280

333

600

641

235

199

72

44

Non current liabilities

Retirement benefit obligation

Interest bearing borrowings

293

Deferred tax liability

13

30

41

51

61

306

268

244

129

113

10

16

17

23

32

Current liabilities
Trade and other payables
Interest bearing borrowings
Amount due to related parties
Bank overdrafts

Total equity and liabilities

27

47

40

31

19

225

67

95

123

106

38

39

33

299

170

186

177

156

638

717

762

906

910

Source: Company Financial Reports and BRS Equity Research

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IPO Note

Cash Flow Statement

Year Ending 31st March
LKR' mn

2013

2014

2015E

2016E

2017E

EBIT

(45)

(62)

21

41

53

Depreciation

19

40

39

41

42

Amortization

0.09

0.36

provision for gratuity

Operating profit before working capital changes

(26)

(20)

62

84

97

Changes in working capital

106

(157)

27

28

(21)

80

(177)

89

112

76

Purchase of property, plant and equipment

(287)

(24)

(85)

(68)

(71)

Net cash flow from/(used in) investing activities

(287)

(24)

(85)

(68)

(71)

Long term loans received

226

shares issued

284

69

250

Loan repayments

(37)

(50)

(170)

(40)

Interest received

(0)

Finance costs

(51)

(52)

(27)

(17)

(7)

Net cash flows from/(used in) financing activities

176

195

(8)

66

(42)

Net increase/(decrease) in cash and cash equivalents

(31)

(5)

(3)

110

(37)

Net cash from/(used in) operating activities

Cash flows from/(used in) investing activities

Cash flow from/(used in) financing activities

Source: Company Financial Reports and BRS Equity Research

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IPO Note

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More than 10%
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