January 2017

International Healthway Corporation

(SGX: 5WA)
Overlooked Asset Rich Healthcare Property and Land Bank Owner
Trading at a Substantial Discount of ~50% to NAV
Significant Upside Potential of >40% by 2018

Please email questions and comments to:

hch@quarzcapital.com
Jan F. Moermann
Havard Chi
www.quarzcapital.com
This presentation is a research report and is for informational purposes only. Opinions expressed are solely those of Quarz
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Quarz Capital Management

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Quarz Capital Management

Content

Introduction
The International Healthway Corporation Opportunity
Assets
Key Reasons for Undervaluation
Our Strategic Proposals
Potential Total Return (Main Proposal)
Analysis of Shareholder Base

IHCs assets (Clockwise L R): Wuxi Phoenix Hospital, Hikari Heights Varus Makomanai-Koen, Hikari Heights Varus Kotoni, IHC KLCC (undeveloped land bank),
Hikari Heights Tsukisamu-Koen, Hikari Heights Varus Fujino
Source: Quarz Capital Management, International Healthway Corporation filings

Quarz Capital Management

Introduction 1/2
Overlooked and Underrated Stock with Attractive Key Assets
Japan
Nursing Homes

Profitable Hospital with

Land Bank for Expansion
in Wuxi, China

Prime Land Bank in KLCC, Malaysia

Potential to be
Developed into a
Landmark Complex
with Medical
Suites, Serviced
Residences &
Retail Space

Akin to Income Resilience

of Healthcare REITs

Benefits from Structural

Trend Similar to Other
Hospital Operators
Cash Inflow from Sale of Assets in Australia

P/E >20x
Dvd Yld < 5.1%

P/E >36x

Trading At Rock Bottom Valuation

Source: Quarz Capital Management, International Healthway Corporation

Quarz Capital Management

Introduction 2/2
Stock is on Investors Most Hated List due to Severe Price Correction
IHC IPO-ed at SGD
0.48/share, Mkt Cap of
SGD 770m
IHC announced controversial plan
to take over Healthway Medical
Corp in an all share deal

SGX issued caution on

trading of IHC shares and
revealed that a handful of
individuals who seem
connected to each other
accounted for 60% of IHCs
total trading volume from
Apr Sept 15

IHCs current price

and Mkt Cap of SGD
0.061 and SGD 101m

Substantial new shareholders

reported stakes of 12% and 6%
in IHC

Stock price plunged from

SGD 0.32 to SGD 0.10 post
SGXs caution message

Substantial new
shareholders
increased their
stakes to 19% and
7% respectively

EGMs
requisited to
remove board
and elect new
directors

Savvy Investors have taken Notice and have been Building up their Stakes
at Distressed Valuations
Source: Bloomberg, SGX, Quarz Capital Management, International Healthway Corporation

Quarz Capital Management

The IHC Opportunity 1/3

The IHC Opportunity
Spin-off from Healthway Medical Corp (one of the biggest general
practitioner & specialist medical clinic chains in SG)
IPO-ed in September 2013
Market Cap has dropped by ~85% due to the combination of
overvaluation during listing, overly aggressive acquisitions, lack of
strategic focus and several execution issues
IHCs share price has over-corrected and trades at a distressed
valuation in spite of its portfolio of attractive healthcare assets
Breakdown of GAV

KLCC Land
10%

Australia
Properties /
Proceeds
14%

Key Statistics
Last Price1
SGD 0.061
1
52-Week Range
SGD 0.038 - 0.090
2
Shares Outstanding
1659.1m
Market Capitalization
SGD 101.2m
3
Gross Asset Value (GAV) SGD 516.2m
Enterprise Value1,4
SGD 421.3m
NAV/Share
SGD 0.118
Discount to NAV
48%
Dividend/Yield
N/A / N/A

China Properties
6%

Japan
Nursing
Homes
70%

1) Bloomberg data as of 12 Jan 2017

2) Based on IHCs Circular to Shareholders dated 30 Dec 2016
3) Based on QCM estimates and IHCs FY2015 (end Dec) Annual
Report
4) IHCs FY3Q16 Financial Statement

Source: Quarz Capital Management, International Healthway Corporation

Quarz Capital Management

The IHC Opportunity 2/3

IHC Trades at a Massive 48% Discount to its NAV
SGD 30m

500

Upside of ~93%
to Mkt Cap
450

Excess Value of
~SGD 94m not
factored into
Curr Mkt Cap

Share price trades at 48% discount to NAV

Current Mkt Cap + Net Debt

SGD 72m

SGD million

400

Japan Nursing Homes +

Share
Price @
SGD
0.061

SGD 52m

Malaysia (KLCC) Land Bank

Mkt Cap
SGD 101m

350

IHCs current Mkt Cap factors a value of 0

with regards to the potential proceeds of
SGD 72m (47m1) from the sale of the
Australian Properties (already earmarked
or contracted for sale) + the value of China
Hospital and Land Banks

SGD 362m

300

Net Debt
SGD 320m

250

Current EV
Japan Nursing Homes
Australia Prop Proceeds

IHC's GAV
Malaysia Land Bank
China Hospital and Land Bank

Estimated total value of ~SGD 102m

1) If IHC loses the lawsuit with Crest Fund in the worst case scenario and has to
pay the extra SGD 25m of liabilities

Source: Quarz Capital Management, International Healthway Corporation

Quarz Capital Management

Assets Flagship Nursing Homes in Japan

12 nursing homes1 with 1458
beds

Hikari Heights Varus Managed Properties

Sapporo,
Hokkaido
Elysion Managed Properties

Operated by 2 reputable
nursing home operators,
Hikari Heights Varus (2137 JP)
and Elysion under 25+ years
master leases
Operators are in charge of
property expenses
Up-only rental revision
provision in all master leases

Matsumoto,
Nagano

Larger-size nursing homes

(>121 rooms/home) result in
higher efficiency and
profitability

Miyazu,
Kyoto

Generate operating income of

~SGD 13m per annum

Nara

Asset can be potentially

valued at ~SGD 362m when
listed as a REIT in Japan
(discount of 20% to peer
valuation)
1) With 1 building annex

Source: Quarz Capital Management, International Healthway Corporation

Quarz Capital Management

Assets Land Bank in KLCC

Oxley purchased plot in

Nov 13 for MYR 3300/psf

50,830 sqft mixed-use land bank ready for

development in the prestigious land scarce
CBD and retail location of KLCC
IHC has intended to develop the land bank
into a 33-storey complex (plot ratio of ~10x)
integrating medical suites, retail space and
serviced residences (contracted Marriott as
operator)

~600m from Suria

KLCC/Twin Tower

MRCB purchased
plot in Apr 15 for
MYR 3188/psf.
Half the plot was
sold to MRT Corp
for MYR 4132/psf
in Nov 16
Palace of
the Sultan
of Johor
Land bank of IHC

KSK purchased
plot in Dec 13 for
MYR 3300/psf.

Source: Streetdirectory, Quarz Capital Management, International Healthway Corporation

Average transactions of comparable land

banks in proximity at > MYR 3200/psf
Latest transaction of MYR 4100/psf
Potential value of land bank at SGD 52.6m
at conservatively assumed fire-sale price of
MYR 3200/psf

Quarz Capital Management

Assets Wuxi Phoenix Hospital and Adjacent Land Bank

7 km from Wuxi
Main Railway
Station

Adjacent land
bank with
approval to
expand hospital

165-bed operational Grade 2B hospital in

Wuxi New District with high occupancy rate

Dense built up residential,

commercial and industrial area
surrounding IHCs hospital

Operating profit of ~SGD 1m in FY2015

International
School of
Wuxi

IHCs Wuxi Hospital

4 km to Wuxi-Singapore
Industrial Park

Catchment population of 1 million within a

~10km radius

Proximity to manufacturing bases of major

MNCs and expats housing community

Elevated highway
to Shuofang
Airport (11 km
away)

New metro station under construction

(Line 3)

Wuxi-Singapore
Industrial Park
39%-owned by Sembcorp

Wuxi South
Railway Station

Operations of >80
MNCs: Matsushita,
Sumitomo, Seagate,
Infineon,
Panasonic, Murata,
Alps, Suntech

Wuxi-Singapore
Industrial Park

Completion of Metro Line 3 (phase 1) in

2018 with planned metro station near IHCs
Wuxi hospital will further improve
accessibility
Adjacent land bank of 22,681 sqm where
IHC plans to develop (together with the
current hospital) into a 1,300-bed Class 3A
hospital with retail component and serviced
apartment block
To obtain a margin of safety, we
conservatively forecast the valuation for the
hospital and the land bank at SGD 25m.
This is substantially lower than IHCs
valuation of ~SGD 100m1
1) IHCs FY2015 Annual Report

Source: Baidu Map, Wuxi-Singapore Industrial Park, Quarz Capital Management, International Healthway Corporation

10

Quarz Capital Management

Assets Others
Melbourne & Geelong (Australia) Properties

541, 553 St Kilda Road1 (Melbourne) have already been contracted for sale with estimated gross
and net (ex-debt & fees) proceeds of AUD 117.8m and AUD 60.8m (settlement in Q1 2017)

Sales process of Geelong Private Medical Centre organized by CBRE was closed in Dec 2016
with imminent result in Q1 2017

We forecast the selling price of Geelong asset to be approximate to the purchased price of AUD
28.9m in June 2015 attributed to:
1) Potential fully leased net income of AUD 1.8m (16x selling price)
2) Major tenants locked in long-term contracts such as ASX-listed Healthscope and Care Park
3) Asset is connected to Geelong Private Hospital with the precinct further supported by Barwon
Health Geelong Hospital

Projected proceeds of AUD 72m2 is expected in H2 2017 following resolution of lawsuit with
Crest Fund

Chengdu (China) Land Bank

18,074 sqm land bank next to 1,000-bed public hospital in Dujiangyan, Chengdu

IHC intends to develop a specialist rehabilitation and wellness hospital with retail component with
target completion in 2016 (listing prospectus). No development progress due to lack of funding

We value the land bank at SGD 5m , half of its cost price of RMB 45.5m in May 2013 due to the
lack of development progress. This is substantially lower than the appraised value of SGD 31m in
2015

1) 541 St Kilda was sold to Nikos Property Group (petroleum entrepreneur Nick Andrianakos) while 553 St Kilda was sold
to investment group, Bayley Stuart. Jones Lang LaSalle organized the sales process for the receivers
2) Estimated net proceeds of AUD 47m in the event that IHC loses in the lawsuit

Source: CBRE, Quarz Capital Management, International Healthway Corporation

11

Quarz Capital Management

The IHC Opportunity 3/3

Investors Focus on Headlines Issues Results in Severe Undervaluation
0.120

0.110

Average trading price at

substantially higher level of
SGD 0.24 0.48
prior to Sep 2015

0.100

+92% - Current NAV / Share of SGD

0.118
(NAV = SGD 196m)

+52%

Australia properties
with NAV of ~AUD
70m put under
receivership due to
substantially smaller
AUD 25m loan
dispute with Crest
Fund

0.090

0.080

>40% - Potential total return based on

the execution of Quarz
recommendations

+25%

0.070

-5 to +15% - Potential range of total

return without catalysts /
normalised scenario

0.060

0.050

0.040

0.030
Sep-15

Substantial
shareholders
build stakes

Dec-15

EGM
requisitions to
remove
directors
Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Source: Quarz Capital Management, Bloomberg, International Healthway Corporation

12

Jun-17

Quarz recommendations can

lead to 1) strengthened balance
sheet, 2) multiple profit growth
drivers, and 3) substantial
rerating in share prices
valuation (in line with sector)

Quarz Capital Management

Key Reasons for Undervaluation

Items / Comments
Loss of confidence in IHCs management and Board of Directors
- >85% drop in IHCs share price since listing (2013)
- Little progress in development projects planned since listing

Strategy

Questionable deals (planned acquisition of Healthway Medical Corp, borrowing / lawsuit with Crest Fund)
Lack of concrete strategy with targeted timeline with regards to the development of projects
(indecisiveness in prioritisation and designation of core and non-core assets / projects)
Board tussle since Sep 2016 has created uncertainty and increased the scepticism of financing and
working partners in collaborating with IHC
Vulnerable balance sheet (asset rich but cash-lite) driven by aggressive acquisitions
Elevated leverage ratio has resulted in sub-optimal and substantially higher interest rate vs peers

Finance

Interest expense exhausts recurring operating income base resulting in the lack of ability to fund
development projects
Lack of active steps taken to address high leverage and low cash flow situation despite multiple levers
(REIT / disposal of assets, JV with partners who can provide the necessary funds and expertise)
Resignation of PWC as auditors due to differences in the valuation of China properties (our hugely
conservative valuation of the asset is 1/5th of that provided by Savills, Colliers and Jiangsu Zhongda)

Communication

Hard to decipher financials (no breakdown of recurring operating income from hospital and Japan nursing
homes vs non-cash fair value gains)

Source: Quarz Capital Management, International Healthway Corporation

13

Quarz Capital Management

Our Strategic Proposals 1/3

Our Position:
Immediate actions have to be taken to:
Promote long-term interest of IHCs shareholders
Address IHCs share price undervaluation
We support the requisitions proposed at the forthcoming EGM (23 Jan
2017):
Remove the existing directors
Elect the new proposed directors

Appoint Baker Tilly as the auditor

Our Views
Fresh perspective is required for IHCs leadership
Nominated directors have strong expertise in Corporate Finance,
Audit, Operations, Business Development, Investment, Governance
New substantial shareholders have demonstrated successful track
record in the execution of development projects and value creation
to shareholders
Rebuild reputation, regain trust of investors and banks, leverage on
new groups extensive contacts and expertise to expedite strategy

Source: Quarz Capital Management, International Healthway Corporation

14

Quarz Capital Management

Our Strategic Proposals 2/3

Main Proposal :
(A) KL Land Bank
(B) China hospital and
land banks

300

(C) Stake in REIT

Continue to
retain a
250 10% stake
in REIT
(2)
SGD
25m

200

(3)
SGD
70m

(4)
SGD
320m

SGD
420m

150

100

(D) Potential profit from

execution of
development projects,
management fees and
hospitals

(1)
SGD
325m

Partial sales of
non-core assets
can release cash
flow which are
substantially
above debt level

50

(C)

SGD
35m

50% Sale of
KLCC Land

AU Prop
Proceeds

Total Cash
Released

Total Debt

3. Net proceeds from sale of AU assets

(B)

SGD
30m

(A)

SGD
25m

5. Deploy net cash of SGD 100m to fund development

of China and Malaysia healthcare (hospital, medical
suites, serviced residence) projects
Upside
of 93%

6. Mid - Long Term - Consider IPO of China assets and

injection of completed fixed assets into REITS to
recycle capital

Additional Recommendations:
SGD
101m

SGD
100m

0
REIT JP
Nursing
Homes

2. Sale of 50% of Kuala Lumpur land bank to potential

JV partners (with funding and development
expertise) to jointly develop project

4. Pay down and refinance (to lower i/r) current debt of

SGD 320m

(D)

Net Cash Mkt

Cap
IHC still
controls
valuable assets
and multiple
growth drivers

1. REIT and list Japan Nursing Homes and sell down to

10% of stake in the asset to monetise SGD 325m of
proceeds. Undertake REIT manager role and grow
the assets of REIT to increase recurring
management fees

Total NAV

Mkt Cap

1. Alternatively, full sale of Japan nursing homes

Unlock more financial resources and full
management focus on attractive development
projects in China and Malaysia
2. Sensible level of rights raising (~SGD 15m) to
strengthen balance sheet in short term proceeds
from divestment to fund long term capital needs
3. Board to communicate transparent forward strategy
with strong commitment and clear execution timeline

Source: Quarz Capital Management, International Healthway Corporation

15

Quarz Capital Management

Potential Total Return (Main Proposal) 3/3

>40% Mid Term Upside Potential With Implementation of Quarz Proposal
0.090

Discount to NAV
to ~25%
Stock Price of
SGD 0.089
(Upside of 15%)

0.085

0.080

Total Upside of
>40%

Implementation of the
proposals - REIT listing
of JP Nursing Homes,
50% sale of KLCC land,
initiation of healthcare
development projects

0.075

0.070

0.065

Discount to NAV
to ~35%
New Board in place
Stock Price of
Concrete strategy with clear
SGD 0.077
timeline set in place to
(Upside of 26%)
deleverage balance sheet
and execute on projects

0.050

1. Strengthened balance sheet

2. Unlock capital to fund attractive
healthcare development projects
(future profit growth driven by
demographics and increase
healthcare spending)
3. Multiple streams of revenue: Asset
management fees (REIT), hospital
services, development project profits

0.060

0.055

Value Creation for Shareholders

(Short to Mid Term)

Current
discount to NAV
at 48%
Stock Price
SGD 0.061

4. Rerating of valuation to that in line

with listed healthcare players (as
projects are being executed)

0.045

0.040

1
Source: Quarz Capital Management, International Healthway Corporation

16

Quarz Capital Management

Analysis of Shareholder Base

Description of Shareholder Base

Mr Ching Chiat Kwong is the founder and majority shareholder (43%) of

Oxley Holdings (Mkt Cap: SGD 1.34bn) which owns a diversified property
development and investment portfolio in Singapore, UK, Malaysia, and
Cambodia

Mr Low See Ching is currently the deputy CEO of Oxley Holdings. He was
previously the CEO of Hafary Holdings until 2014

Ms Audrey Low is the sister of Mr Low See Ching

Mr Fan Kow Hin was the GM (COO) of DBS Land (present day Capitaland)
till 2000. He founded Healthway Medical Corp (Mkt Cap: SGD 91m), listed
the company in 2008 and is currently its biggest shareholder (19%). IHC
(which contains Healthway Medicals international assets) was spun-off in
2013. Mr Fan became IHCs CEO in May 2015. He resigned from this
position in Jan 2016.

Shareholding Level
Fan Kow Hin - 24%

Mr Aathar Ah Kong Andrew was the head of DBS Realty (part of DBS
Land which became present day Capitaland) till 2000. He was one of the
founders and the 2nd biggest shareholder (9%) of Healthway Medical Corp

Ms Lim Beng Choo has been the CEO of IHC since Jan 2016. She was
previously the VP of Investments and the Financial Controller from 2013.
She was the financial controller of Healthway Medical Corp from 2008-13

Mr Jong Hee Sen was the co-founder of IHC and was its Executive
Chairman and Group President until Mar 2015 before being re-designated
to Non-Executive Chairman. He resigned from IHCs board of director in
Dec 2016. Prior to these roles, he was the director and president at
Healthway Medical Corp from 2007-10 and was previously from GIC
covering real estate investment and fund management in Asia

~36% of total shares are in free float

Low See Ching - 7%

Aathar Ah
Kong Andrew
9%

Lim Beng
Choo
0%

Source: Quarz Capital Management, International Healthway Corporation, Bloomberg

17

Ching Chiat Kwong - 19%

Audrey Low - 4%

Free Float
36%

Jong Hee Sen 1%

RESEARCH OFFICE
Quarz Capital ASIA (Singapore) PTE. LTD.
Havard Chi, CFA
Head of Research
E-mail
hch@quarzcapital.com
Tel
+65 (0)94 33 3898
REGISTERED OFFICE
Quarz Capital Management, Ltd.
Clifton House, 75 Fort Street
P.O. Box 1350, George Town
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www.quarzcapital.com

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