ISEC Healthcare

ISEC Healthcare: (S$0.29) Ripe for the picking as M&As could gather pace

ISEC Healthcare rebounded 7.4% in morning trade as Maybank-KE upgraded the counter to Buy from Hold after its recent share price plummet below its IPO price of $0.28.

The eye specialist recently announced the acquisition of Malacca-based Southern Specialists Eye Centre (SSEC) for RM37.1m, of which, 57% will be paid out in shares and the remainder doled out in cash.

The price tag represents 12.4x SSEC’s FY14 earnings, which appears relatively cheap compared to ISEC’s FY15 P/E valuation of 20x.

SSEC is one of the largest and most reputable private eye specialist (ophthalmology) practices in Malaysia. Located in Malacca, SSEC is well positioned to benefit from medical tourists from Southern Sumatra and Singapore. Maybank-KE estimates that the acquisition is likely to boost ISEC’s FY16-17 EPS by 8-9%.

More of such M&As are in store with the group in various discussions with practices in Taiwan and Indonesia, with a possible major deal in Taiwan.

On the flip side however, ISEC is expected to report weak earnings in FY15 on charges taken with regards to the closure of its loss-making Mount Elizabeth Novena Specialist Centre as well as ringgit weakness. But these may have already been factored in its current prices.

Overall, the house opines that the risk/reward has now turned favourable for ISEC, and rates it as the cheapest healthcare stock under its purview.

The house maintains its TP of $0.40, after ascribing a 10% discount to its peers in view of its smaller size.