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Alliance Healthcare Group Limited’s IPO: What Investors Should Know

Alliance Healthcare Group Limited is set to be the next company to go public in Singapore after the successful listing of two real estate investment trusts (REITs) – ARA US Hospitality Trust (SGX: XZL) and Eagle Hospitality Trust (SGX: LIW) – recently. Alliance Healthcare just filed for its initial public offering (IPO). Let’s find out more about the company and its IPO.

About Alliance Healthcare’s business

Alliance Healthcare is an integrated healthcare group that uses technology to provide a wide range of healthcare services, mainly in Singapore. It has four main business segments: Managed Healthcare Solutions, General Practitioner (GP) Clinic Services, Specialist Care Services, and Pharmaceutical Services.

Under the Managed Healthcare Solutions segment, Alliance Healthcare is a provider of managed healthcare solutions to firms and insurance companies through a network of medical services providers. In this segment, Alliance Healthcare provides solutions for outpatient healthcare and treatments at private hospitals.

The company has arrangements with eight insurers and serves over 2,000 companies through its network of more than 1,000 medical services providers within its Alliance Healthcare Network.

Under the GP Clinic Services segment, Alliance Healthcare owns and operates 17 GP clinics across Singapore. Some of the services it provides include general medical consultations, management of acute and chronic conditions, pre-employment health screening, and minor surgical procedures.

The Specialist Care Services segment has five specialist clinics providing medical diagnosis and surgical treatments of Ear Nose & Throat (ENT), colorectal and orthopaedic conditions. Meanwhile, the Pharmaceutical Services segment sells and markets Alliance Healthcare’s specialty pharmaceutical products to hospitals, pharmacies, and clinics in Singapore and other overseas markets.

The following chart shows the revenue and profit before tax contributions by business segments for FY2018 (financial year ended 30 June 2018):

Source: Alliance Healthcare Group IPO prospectus

Financial highlights

Alliance Healthcare’s revenue grew from S$25.8 million in FY2016 to S$33.8 million in FY2018, translating to an annualised growth rate of 14.5%. Its net profit increased by a whopping 149% annually from S$0.5 million in FY2016 to S$3.1 million in FY2018.

Alliance Healthcare’s balance sheet is strong. As of 30 June 2018, the healthcare company had S$8.8 million in cash balance, and S$4.2 million in other financial liabilities, which mainly relate to term loans from two local banks. This translates to a net cash position of S$4.6 million. In comparison, at the end of September 2018, it had S$3.5 million in net cash.

As for the company’s operating cash flow, it rose from S$2.4 million in FY2016 to S$5.6 million in FY2018. With capital expenditure at S$0.7 million, S$0.8 million, and S$0.7 million in FY2016, FY2017, and FY2018, respectively, free cash flow grew around 70% annually from S$1.7 million in FY2016 to S$4.9 million in FY2018.

IPO details

A total of 32 million shares will be on offer at a price of S$0.20 apiece. Of the 32 million, 31 million will be placed out to a select group of investors, and one million will be offered to the public.

Upon listing, Alliance Healthcare is expected to have a market capitalisation of S$41.6 million based on a share capital of 207.9 million shares. Alpine Investment Holdings will have a 64.2% stake in Alliance Healthcare post-IPO. Alpine Investment is owned by Chief Executive Officer Barry Thng Lip Mong, Loh Cher Zoong, Goh Tiong Jin and Yun Kok Onn. The four doctors are all founders of Alliance Healthcare.

Alliance Healthcare is looking to raise net proceeds of S$4.5 million. The company plans to use the proceeds for expansion of its network of clinics and medical facilities, acquisitions, joint ventures and/or strategic alliances, investment into technology systems, expansion of its pharmaceutical services business, and general working capital purposes.

Alliance Healthcare’s IPO closes on 29 May 2019 (at 12:00 pm), and trading is expected to commence on 31 May 2019 (at 9:00 am).

Valuation

At an IPO price of S$0.20 and post-IPO share capital of 207.9 million shares, Alliance Healthcare would be selling at 13.5x its FY2018 earnings.

Alliance Healthcare counts Fullerton Healthcare Corporation Limited, Healthway Medical Corp Ltd (SGX: 5NG), MHC Asia Group Pte Ltd, Parkway Shenton Pte Ltd (part of IHH Healthcare Bhd (SGX: Q0F)), and Raffles Medical Group Ltd (SGX: BSL) as its main competitors. Healthway Medical has been loss-making from 2016 while Raffles Medical had a trailing price-to-earnings (PE) ratio of 27x, as of yesterday’s close. IHH Healthcare traded a PE ratio of 82x yesterday.

Alliance Healthcare does not have a dividend policy. However, its board intends to recommend and distribute dividends of at least 30% of net profit after tax (excluding exceptional items) for FY2020 and FY2021.

The Foolish prescription

Alliance Healthcare has a strong business with growing revenue, net profit, and free cash flow. Its balance sheet, as of September 2018, was also healthy. At a valuation of around 14x historical earnings, the company seems to be cheap. However, the company derives most of its revenue from Singapore. Therefore, investors should ascertain if Alliance Healthcare can grow further in a somewhat saturated market here. They should also dive into the risk factors of the company before deciding to invest their hard-earned money in Alliance Healthcare’s IPO.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Raffles Medical Group Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Raffles Medical Group Ltd.