Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

We initiate our coverage of <a href="https://www.smartkarma.com/entities/thomson-medical-group-limited" target="_blank" data-smartkarma-citation="entities:8495:1" rel="noopener">Thomson Medical Group Limited (ROWS SP)</a> (TMG). The acquisition of a profitable Thomson Medical Centre (TMC) together with <a href="https://www.smartkarma.com/entities/tmc-life-sciences-bhd" target="_blank" data-smartkarma-citation="entities:12066:1" rel="noopener">Tmc Life Sciences (TMCL MK)</a> (TMCLS) by Rowsley Ltd. in 1Q’18 has changed the fortune and checkered past of Rowsley, in our view. With the divestment of its loss-making real estate investments in January 2019 and name changed to TMG, TMG is now a pure healthcare play on a clean slate.TMG’s strength lies in TMC/TMLCS as one of Asia’s largest healthcare players with a focus in the Obstetrics &amp; Gynaecology (O&amp;G) markets in Singapore and Malaysia. Revenue drivers going forward include (1) its premier private hospital status in Singapore, (2) TMSCL’s expansion in Kuala Lumpur, and (3) the new hospital development in Johor Bharu.We see the first driver as a cash cow on TMC’s focus on oncology and preventive health as the next pillar of growth in the medical industry. COVID-19 patients could have further complication due to diabetes, high blood pressure, or heart problems. Thus, we expect preventive healthcare to grow in importance whether or not COVID-19 stays with us. We see the latter two drivers as promising in Malaysia’s much larger market (compared to Singapore) with the triple expansion of capacity at Thomson Hospital Kota Damansara near Kuala Lumpur to generate revenue by 2021, and the potential to draw Singaporeans to visit hospital facilities in Johor Bharu when the facility will be completed in 2026. We like the long-term prospect but are cautious in the next 2-3 years as capex for the Malaysian projects can worsen the liquidity situation at TMG. Our base-case scenario calls for patients worldwide to be postponing non-essential medical procedures and even parenthood that could reduce TMG’s revenue growth, to say the least.TMG’s balance sheet is highly levered stemming from the side effect of the acquisition which, in our view, encouraged management to maximize return on shareholders’ equity for the publicly-listed stocks with additional leverage. We expect its liquidity and EBITDA to just sufficiently cover its cash outflow and would see additional capital injection as credit-positive in the future.Overall, we like TMG’s leveraged growth story but believe the story is geared to benefit shareholders more than bondholders. Clearly, Rowsley’s management realized the potential of TMC’s cashflow, and decided to maximize shareholders’ value through borrowing. As far as bondholders are concerned, this is about balancing liquidity risk with recurring revenue. In our judgment, its debt level would put the group in the “B“ category had it not been for its recurring revenue in the healthcare industry. We believe the bonds are fully-valued versus peers and see limited upside in the near term while we do not recommend selling either as we believe the TMGSP complex still offers a fair carry for its recurring cashflow . As such, we assign a NEUTRAL recommendation on the TMGSP complex.

We initiate our coverage of Thomson Medical Group Limited (ROWS SP) (TMG). The acquisition of a profitable Thomson Medical Centre (TMC) together with Tmc Life Sciences (TMCL MK) (TMCLS) by Rowsley Ltd. in 1Q’18 has changed the fortune and checkered past of Rowsley, in our view. With the divestment of its loss-making real estate investments in January 2019 and name changed to TMG, TMG is now a pure healthcare play on a clean slate.TMG’s strength lies in TMC/TMLCS as one of Asia’s largest healthcare players with a focus in the Obstetrics &amp; Gynaecology (O&amp;G) markets in Singapore and Malaysia. Revenue drivers going forward include (1) its premier private hospital status in Singapore, (2) TMSCL’s expansion in Kuala Lumpur, and (3) the new hospital development in Johor Bharu.We see the first driver as a cash cow on TMC’s focus on oncology and preventive health as the next pillar of growth in the medical industry. COVID-19 patients could have further complication due to diabetes, high blood pressure, or heart problems. Thus, we expect preventive healthcare to grow in importance whether or not COVID-19 stays with us. We see the latter two drivers as promising in Malaysia’s much larger market (compared to Singapore) with the triple expansion of capacity at Thomson Hospital Kota Damansara near Kuala Lumpur to generate revenue by 2021, and the potential to draw Singaporeans to visit hospital facilities in Johor Bharu when the facility will be completed in 2026. We like the long-term prospect but are cautious in the next 2-3 years as capex for the Malaysian projects can worsen the liquidity situation at TMG. Our base-case scenario calls for patients worldwide to be postponing non-essential medical procedures and even parenthood that could reduce TMG’s revenue growth, to say the least.TMG’s balance sheet is highly levered stemming from the side effect of the acquisition which, in our view, encouraged management to maximize return on shareholders’ equity for the publicly-listed stocks with additional leverage. We expect its liquidity and EBITDA to just sufficiently cover its cash outflow and would see additional capital injection as credit-positive in the future.Overall, we like TMG’s leveraged growth story but believe the story is geared to benefit shareholders more than bondholders. Clearly, Rowsley’s management realized the potential of TMC’s cashflow, and decided to maximize shareholders’ value through borrowing. As far as bondholders are concerned, this is about balancing liquidity risk with recurring revenue. In our judgment, its debt level would put the group in the “B“ category had it not been for its recurring revenue in the healthcare industry. We believe the bonds are fully-valued versus peers and see limited upside in the near term while we do not recommend selling either as we believe the TMGSP complex still offers a fair carry for its recurring cashflow . As such, we assign a NEUTRAL recommendation on the TMGSP complex.

Thomson Medical Group: Medicated by Leverage

APAC IPOs & Placements

Zhen Zhou, Toh

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Event-Driven

Thomson Medical Group Limited / Event-Driven

<a href="https://www.smartkarma.com/entities/8495" target="_blank" data-smartkarma-citation="entities:8495:1">Rowsley Ltd (ROWS SP)</a> announced that earlier in July that it will be buying Sasteria, the company that holds Thomson Medical. On 18th December, the company released a corporate presentation as the company entered into a sale and purchase agreement (S&amp;P agreement).Post announcement, Rowsley's share price rallied about 20% from the previous close, but, we think that the market has been showing a tad too much of irrational exuberance.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/040/773/original/One-Year-Price-Chart-of-Rowsley-SGD-Last-Price-Volume-000-_chartbuilder.png?1513667338" class="editor-image img-responsive" data-smartkarma-image-id="40773"></figure><h2>Details of the acquisition 
</h2><ul><li>Rowsley will be buying Sasteria for…</li></ul>

Rowsley Ltd (ROWS SP) announced that earlier in July that it will be buying Sasteria, the company that holds Thomson Medical. On 18th December, the company released a corporate presentation as the company entered into a sale and purchase agreement (S&amp;P agreement).Post announcement, Rowsley's share price rallied about 20% from the previous close, but, we think that the market has been showing a tad too much of irrational exuberance.Details of the acquisition  
Rowsley will be buying Sasteria for…

Signs of Irrational Exuberance as Rowsley Transforms into Thomson Medical

Malaysia

TMC Life Sciences Bhd provides health care services.  The Company offers human infertility consulting and treatment services.

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TMC Life Sciences (TMCL MK)

Thomson Medical Group: Medicated by Leverage

We initiate our coverage of Thomson Medical Group Limited (ROWS SP) (TMG). The acquisition of a profitable Thomson Medical Centre (TMC) together...

Bondcritic

Signs of Irrational Exuberance as Rowsley Transforms into Thomson Medical

Rowsley Ltd (ROWS SP) announced that earlier in July that it will be buying Sasteria, the company that holds Thomson Medical. On 18th December, the...

Zhen Zhou, Toh

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52-week Range

Market Cap (USDm)

P/E

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