Thomson Medical Group announces 3-year SGD senior unsecured notes at IPG of 5.60%

Thomson Medical Group (“TMG”) plans to issue a new 3-year SGD senior unsecured paper at the initial price guidance (“IPG”) of 5.60%. The new notes will be available for accredited and institutional investors only. It is expected to be issued on 13 May 2024, with a maturity date of 13 May 2027. TMG indicated that the net proceeds will be used for the refinancing of existing borrowings (including partial repayment of the acquisition loan for Far East Medical Vietnam Limited) and the general working capital of the Group.

TMG is one of the leading listed healthcare players in the Southeast Asian region, with operations in Singapore and Malaysia, while it recently expanded into Vietnam. The latest acquisition, Far East Medical Vietnam Limited, sees expansion into Vietnam’s growing market and has been one of Southeast Asia’s largest healthcare acquisitions since 2020. For more information about the acquisition and TMG’s FY23 results, do refer to our previous coverage here.

For the six months ended 31 December 2023 (“1H24”), TMG experienced a drop in performance – with revenue and profit after tax falling by -8.6% and -79.7% year-on-year (“YoY”) respectively. Revenue had fallen from SGD 184m (1H23) to SGD 168m (1H24), largely attributable to slower operations in Singapore as short-term service contracts related to the COVID-19 pandemic have been completed. Profit after tax saw a significant decline from SGD 24.3m (1H23) to SGD 4.9m (1H24), owing to lower revenue, higher operating expenses and higher finance costs.

Management has indicated that the performance in Singapore has additionally been affected by ongoing renovations carried out in its flagship facility, Thomson Medical Centre – impacting the overall operational capacity in the facility. The asset enhancement initiative is expected to be completed in 2024, with a majority part of it completed by the first half of 2024.

On the other hand, TMG sees considerable growth in its Malaysia operations – adjusted EBITDA expanding from SGD 6.4m (1H22) to SGD 9.9m (1H23), and now at SGD 16.1m (1H24). Its flagship Thomson Hospital Kota Damansara received operating licenses for its new expansion wings and new oncology unit previously in March 2022, and TMG has been increasing the number of beds since. It specified that 350 licensed beds are available as of 31 December 2023 and plans to progressively increase the bed capacity to the maximum of 554 beds in the near term. Alongside the planned development in Iskandar, Johor Bahru, we expect its operations in Malaysia to be a significant driver for TMG’s earnings.

As the newly acquired Vietnam operations are excluded from the reporting, TMG has provided several pro forma figures – pro forma group revenue will increase from SGD 168m (actual) to SGD 223m, while pro forma profit after tax will increase from SGD 44.2m (actual) to SGD 55.3m. With this in mind, we believe the operations in Vietnam is likely to contribute to TMG’s upcoming reporting and offset the drop in performance coming from the completion of COVID-related projects in Singapore.

The Vietnam hospital acquisition in 2023 has resulted in a moderation in TMG’s credit profile. We see a significant increase in net debt, from SGD 461.2m as of June 2023 to SGD 835.0m as of December 2023 – primarily for the funding of the acquisition. With that said, TMG continues to maintain sufficient liquidity with cash and cash equivalents at SGD 271.9m (Dec 2023), comparable to SGD 286.6m (Jun 2023). Most debt-related credit metrics worsened on the backdrop of higher debt. However, we believe the increase in future earnings will compensate for the increase in interest expenses while allowing TMG to accumulate additional cash for debt repayment, thereby improving credit metrics.

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TMG SGD Issuances

TMG is unrated, with the new issue expected to be unrated as well. Do note that the final price guidance is likely to adjust downwards from the IPG. We feel that the new issue is relatively attractive compared to its SGD issuances in the market, as well as against its 2028 paper, considering the higher yield for a shorter duration.

As an issuer, we expect TMG to remain relatively stable in the years ahead, with the latest acquisition to contribute considerably in its upcoming financial reporting. At the same time, particularly for its business in Malaysia, we see growth opportunities. Overall, we believe the new issue will be great for investors looking for a higher-yielding option in the short to medium term. 

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