Brokers take on first IPO for 2015 Singhe Hospitals

Friday, 27 March 2015 00:00 - - {{hitsCtrl.values.hits}}

Merchant Bank of Sri Lanka & Finance PLC’s investment banking and business advisory division has been a pioneering many Initial Public Offers since its inception in 1982. In 2015, it continued its journey from Singhe Hospitals’ Initial Public Offer. Asha Phillip Securities Ltd. released a comprehensive report on 9March to all its clients providing a detailed review of the IPO. According to the research report,it has provided details on Objectives of the Issue, Pre-IPO and Post IPO shareholding, Company Operations, Financial Performance for last 3 years, Competitor Analysis and Future Price Movements and Valuations. The Asha Phillip Securities report indicated: “It is certain that leading hospital counters have gained confidence amongst investors mainly due to its longstanding establishment and brand superiority, regardless the fact that most of healthcare sector counters are illiquid in nature. Healthcare sector represents with 20x sector PER and PBV of 2.7x. It is clear that most of the healthcare players’ valuations scattered around their respective sectorial benchmarks. Trading pattern of SIHL upon its listing on Diri Savi board will depend on the prevailing market sentiment at the time of listing. Further, all the pre-issued shares have been locked-in for next six months-12 months period and only IPO shares will appear for trading during the said period. This situation could trigger opportunities in short term price appreciations.” Further it was evident Lanka Securities issued a report to their clients on 6March. They have provided a healthcare industry review along with the Ratnapura District density analysis. The Lanka Securities report indicated: “The counter has a book value per share of Rs. 1.40 per share. Based on average peer PBV the price for the share would be Rs. 3.70, +49%. Nonetheless, we believe it is not accurate to estimate the value based on peer PBV consider the various differences especially demographic differences between Colombo hospitals and a hospital based in Ratnapura. Therefore, we believe it is fair to assume a 25% discount on the peer PBV, which leads to a value per share of Rs. 2.80 based on the post IPO book value. This reflects a return of 11% from the IPO price. Nonetheless, considering the IPO lock-in period, only 100mn IPO shares will be available for trading in the first six months subsequent to listing in CSE. Therefore, based on the market supply and demand factors (and considering this will be a penny stock, which might attract retail investors), there will be short-term trading opportunities on the initial days after listing. Further, based on the forecasted financials, it is evident that the company may be in a position to report improved performance, hence there will be an opportunity for investors with long-term investment horizon. Therefore, considering the above we recommend subscribe.”