Nanyang Technological University - Delta Capital

Delta Analysts: Healthcare, Biotech and Pharmaceutical Industry

Chin Zhen Yu Singapore Stock Exchange (SGX)
Collin Chang
Shaun Tan Wei Jian AsiaMedic Limited

Date: 9/12/2015 Current Price: SGD 0.070 Recommendation: Buy

Ticker: AMAT:SP USD/SGD: 1.4087 Target Price: SGD (USD)

AMAT: A Forgotten Gem

We issue a BUY recommendation on AsiaMedic Limited (AMAT) with a one-year target

price of $0.11 per share with an upside potential of 53% using the discounted free cash
flow method.

Market Portfolio One-of-a-kind Premium One-Stop Shop

Closing price
Niche built in lucrative industry. Positioned to take advantage of shifting developments
0.068
(SGD)
52-week price
AMAT offers an exhaustive suite of premium services for its clients. Patients include
0.155-0.05 referrals from both private and public hospitals, and walk-ins. Despite its size, AMAT
Range (SGD)
Average 3-
offers industry leading diagnostic and wellness services through its impeccable quality
300,000 standards and unparalleled convenience and flexibility. AMAT has been recognized and
month volume
Shares
was awarded 2015 Frost & Sullivan Singapore Diagnostics Imaging Company of the year.
338,990,000 Given shifting industry developments, AMAT is poised to benefit from the greying
outstanding
Market cap
population of Singapore and preference for wellness services in a bid to manage shifting
23.1 disease patterns that require pre-emptive medical services that are prevalent in SEA.
(SGD millions)
Dividend yield 0
Net Income growth from Business Diversification and International Expansion
P/E 21.066 New product offerings and international expansion to capture greater potential
P/B 1.612
In recent years, AMAT has utilized various strategic alliance tools to build up its product
Source: Bloomberg
portfolio and international expansion. These initiatives have great potential in boosting the
net income margins of AMAT as these new markets ventured into are highly lucrative and
Share Price Movement have great potential. Hence, with its premium and niche positioning, AMAT is poised to
increase its market share in the future.
0.16
0.14
SGD per Share

0.12 Highly Attractive Takeover Target

0.1
0.08 Strong fundamentals and synergy with other healthcare providers & Compelling valuation
0.06
0.04
0.02 Low trading volume, lack of liquidity coupled with poor analyst coverage had resulted in
0 AMAT poor stock performance over the past years. AMATs stock price remains
significantly undervalued, making it an attractive takeover target. AMAT has received the
attention of large healthcare providers as well as institutional investors. In fact, in June
2015, Chinas Luye Medicals Group acquired 28.15% of AMATs shares in an off-market
Source: Yahoo Finance transaction at a SGD 0.018/ share. The transacted price of SGD 0.018/share is 2.5x more
than AMAT existing share price at the time of the deal. (AMATs current price is SGD
0.070 and SGD 0.067 in June 2015) This implies that there are investors who actually
AMAT Earnings Per Share valued AMAT at 2.5x its existing price, representing TREMENDOUS upside potential for
0.3
AMAT. Furthermore, valuation metrics indicate that AMAT is trading (~22x Price/Earnings)
below its longer term average, and below that those of its competitors.
0.2
SGD Per Share

0.1
Besides, AMAT offers massive synergies to potential acquirers. The acquisition of AMAT
0 would provide the acquirer with access to thousands of high-income expatriates and high
-0.1 2010 2011 2012 2013 2014 net-worth medical tourists. Future cross-selling of medical services would result in
-0.2 revenue synergies. The pooling of medical equipment and other resources will also result
-0.3
in more efficient utilisation.

Source: Company Data
Our group expects that AMAT would be the subject of a takeover bid within the next three
to five years given its strong fundamentals, synergy with acquirers, compelling valuation,
accompanied with a modest EV of ~SGD 23 million. The acquirer could be a local
healthcare provider like Raffles Medical Group or Heathway Medical Corporation, which
are trying to increase their local market share. It could be also be an overseas healthcare
provider like Chinas Luye Medicals Group looking to enter Singapores lucrative
healthcare market. Should a takeover bid occur, investors can expect an offer between 3-
4 times AMATs existing market value.

1
 Key Ratios 2010A 2011A 2012A 2013A 2014A 2015F 2016F 2017F
Quick Ratio 8.068 7.609 5.479 1.415 1.673 2.087 1.786 1.937
Current Ratio 8.157 7.751 5.546 1.628 1.972 2.424 2.111 2.304
Total Asset Turnover 0.630 0.688 0.754 0.743 0.851 1.016 1.109 1.280
EBIT Margin (0.012) (0.055) (0.012) (0.027) (0.08) 0.064 0.057 0.050
Net Income Margin 0.015 (0.076) 0.007 0.004 0.035 0.047 0.042 0.035
ROA (0.05) (0.024) (0.006) (0.012) (0.005) 0.048 0.046 0.045
ROE 0.002 (0.077) 0.003 0.005 0.047 0.073 0.070 0.066
SG&A/Sales 0.099 0.098 0.097 0.091 0.082 0.089 0.089 0.090
Debt/Equity Ratio 0.016 NA 0.143 0.320 0.339 0.527 0.544 0.485
Long-term Debt Ratio 0.010 NA 0.108 0.173 0.174 0.185 0.183 0.169
EBITDA / Interest Exp. 86.472 101.077 32.771 11.937 7.257 17.530 16.598 15.636

Business Description
Figure 1: AsiaMedic
AsiaMedic Limited (AMAT) is an investment holding and management company that
Revenue Breakdown specializes in premium wellness and preventive management, advanced diagnostic
(FY2014) imaging and collaborative health management. Most of AMATs operations is in
Singapore. However, AMAT has operations in key growth markets such as China and
Diagnostic
Myanmar.
services
6% CHI &
21% Company
Astique
56%
17% Wellness Business areas and profitability
Services
Others In 2012, AMAT began with only two core businesses which were Singapore-centric:
radiology and health screening, representing 80 percent and 20 percent of revenue
Source: AsiaMedic 2014 Annual Report respectively. In 2015, AMAT has expanded its business portfolio into 5 areas by providing
3 additional services: CHI health that provides an extensive range of healthcare services
Figure 2: Earnings Before mainly for expatriates living in Singapore, Cosmetic services and Cord blood banking. As
Tax of 2014, radiology services (diagnostic) only accounted for 56 percent of revenue, with
0.4 other revenue streams contributing more than before (Figure 1).
0.2
Plotting AMATs Earnings Before Tax (Figure 2) that excludes unusual items unrelated to
0 their core businesses like tax income credits received from the government from FY2010
to 2015 depicts that there was a decrease in revenue in 2013 to 2014 during the time
(0.2) AMAT diversified into other business areas. The decrease in revenue proved to be
(0.4)
transitory as the company recorded a positive earnings before tax in 2015 with positive
maiden contributions from CHI (Complete Healthcare International) health and Astique.
(0.6) This indicates that AMATs newly acquired business areas are profitability and has
contributed to its net profit position in 30 June 2015.
Source: Capital IQ
International Expansion

AMAT Net Income AMAT is quick to expand its regional footprint and in 2011, through a partnership with
Mubadala Healthcare partners, AMAT opened up a new medical disease screening centre
1.5 in Abu Dhabi. In 2012, AMAT ventured into China by setting up post-natal confinement
1.0 centres in Shanghai. In 2013, AMAT commenced Myanmar operations via radiology
0.5 services for two hospitals in Mandalay. By opting for joint venture vehicles, acquisition and
0 partnering instead of having Greenfield operations, AMATs international projects are in
line with its model of adopting businesses that require low capital expenditure whilst being
(0.5) highly scalable. The risk of financial loss is also limited, as with the case of the cessation
(1.0) of interest in several Shanghai post-natal confinement centres in 2015. Although the loss
due to the cessation of the business in Shanghai is sizeable (~SGD 1.6 million), AMAT
could have lost more had it entered operations in Shanghai alone as more resources
would have been required.

Source: Capital IQ Convenience and Flexibility

Through its three core business units (AsiaMedic Wellness Assessment centre, AsiaMedic
Advanced imaging centre, AsiaMedic Positron Emission Tomography (PET) centre),
AMAT provides a complete range of screening services for its customers. Furthermore,
AMAT usually provides diagnostic or medical reports within the same day of doctors

2
 referral and scan. AMAT also collaborates with specialists from both private and public
Porters' Five Forces hospitals; patients from both public and private hospitals are sent to AMAT for
screening. The convenience and flexibility AMAT services provide are strongly desired as
Competitiv
it acts as a form of competitive advantage because healthcare providers in the industry
e Rivalry
4 are typically unable to perform such services in a span of a day. Aggregated utilization
rates of its capacity have increased to around 80 percent and AMAT intends to increase
Threat of Bargaining
2 the number of equipment it has to fulfil the burgeoning demand as utilization increase.
New Power of
Entrants 0 Suppliers
Reputed Branding
Bargaining
Threat of AMAT is a renowned brand within the industry, and is able to command premium pricing.
Power of
Substitutes
Buyers AMAT received the 2015 Frost & Sullivan Singapore Diagnostics Imaging Company of the
Year Award, a prestigious award that recognises its diagnostics imaging capabilities in the
Source: Team Estimates (Refer to
Appendix 1 for more information) healthcare industry. Additionally, AMAT was also one of the three finalists for the Best
Healthcare Experience Award under the Singapore Experience Awards 2015 awarded by
the Singapore Tourism Board. This signals AMATs capability in providing premium
healthcare services to its valued customers.

For a company of its size, AMAT has remarkable service standards. In cord blood
banking, one of AMATs business areas, unlike from its competitors - Cordlife and
Stemcord whose does their processing and storage activities - AMAT opts to contract
Singapore Cord Blood Bank (SCBB) to do so. This is due to the stringent protocols
practised by SCBB and AMAT wishes to comply with the SCBB strict quality rules,
solidifying its reputable brand in the industry.

Seasoned Equity Offering via Private Placement

On 8 December 2015, AMAT made an announcement proposing a private placement of

51.50 million new ordinary shares, raising approximately SGD 2,810,500. AMAT has
currently approximately 339 million ordinary shares. According to AMATs filings, this
move enhances the quality of its services by purchasing new and advanced equipments;
thus improving its profitability. Although a private placement dilutes existing shareholdings,
we are of view that it is most favourable for AMAT at this stage for the following reasons:

1. AMAT does not have significant financial slack to participate in NPV projects, and
debt financing would be the next best option. However, given its current high debt
to equity ratio of 40.3%, the continued use of debt financing would cause a debt
overhang, and asset substitution problem may arise, therefore the need for a
private placement to AMAT to continue to pursue profitable projects that enhance
value.

2. A private placement is the only method, amongst firm commitment and rights offer
that has positive abnormal returns, acting as a positive short term catalyst.
Through 4 December to 8 December 2015 after the announcement was made,
AMAT increased by ~11% (SGD 0.007).

Shareholding and Corporate Structure

Table 1
Substantial % of shares As of 31 December 2014, Grandiflora Pte Ltd has a 23.99% stake in AMAT, making it one
shareholders held of the largest shareholders (Table 1). Besides nominees, the second largest shareholder
Luye Medicals Group 28.15% was Mr. Tan Wang Cheow of 4.16%, the then non-executive Chairman of AMAT.
Pte Ltd However, in 2015, the combined shareholding of Grandiflora and Mr. Tan Wang Chow
Tan, Geuk Ming 2.50%
was acquired by Luye Medicals Group Pte Ltd, making Luye Medicals Pte Ltd the largest
Maybank Kim Eng 2.39% sole shareholder of AMAT with a shareholding of 28.15%. Luye Medicals Pte Ltd is the
Securities
subsidiary company of Chinas pharmaceuticals group Luye Medical Group Co. Luye
OCBC Securities Pte Ltd 2.32%
Medical is known to have a successful track record and had recently purchased
Soon, Tan Ah 2.09% Australias third largest private hospital operator, Healthe Care. Therefore, Luye Medicals
Source: SGX investment in AMAT indicates a positive outlook for the company.

AMAT consists of a board of directors of 4 established professionals with 2 non-executive

directors. These four directors are all newly appointed directors in 2015. A series of
cessation of non-executive directors were performed on 3 June 2015, when Luye
Medicals Pte Ltd became the major shareholding of AMAT with 28.15% shareholding.
While the change in management structure may represent a loss of leadership and
guidance from the previous group of key leaders, the change in management represents a
new reformed AMAT with its subsequent events that include (1) Cessation of interests in
Shanghai Medical and postnatal centres (2) Seasoned equity offering to upgrade its

3
 medical and operational facilities. The cessation of interests could represent a healthy
start, driven to reduce competition towards Luye Medicals in China.

Industry Overview

Booming Healthcare Industry

In Singapore, the percentage of spending on healthcare to GDP is estimated to be 3.9%

and is projected to remain stable from 2014 to 2018. Despite the greying population, the
percentage of spending on healthcare remains stable mainly because of an increase in
direct government spending on healthcare to provide subsidized healthcare for
Singaporeans. In 2015, the Ministry of Health (MOH) allocated SGD 9.2 billion, a 29
percent increase from the SGD 7.1 billion in 2014 through several initiatives such as the
Pioneer Generation Package. In addition, employer contribution to employees social
security, known as the Central Provident Fund, has increased by 1 percent, allowing for
more health care spending. As of 2014, the Singapore healthcare industry is valued at
SGD 15.1 billion.

On the whole, Asia has an active medical tourism industry due to the balance of quality
and advanced medical care/technology and relatively affordable cost compared to the rest
of the developed nations. Asia medical tourism is estimated by RNCOS to grow at 22
percent compounded annual growth rate (CAGR) from 2014 to 2018. Singapores
healthcare industry is estimated to grow at a CAGR of 9.9 percent, from SGD 15.1 billion
in 2014 to SGD 39 billion in 2024.

Aging Population and Rising Affluence

Table 2: Life expectancy of
Singapore residents at birth (in The average life expectancy in Singapore has been climbing steadily from 81.7 in 2010 to
years) 82.8 in 2014 (Table 2). By 2020, it is estimated that over 20 percent of the population will
Year Total be aged 65 and above, making Singapore a super-aged nation.
2010 81.7
According to data by the Singapore Straits Times, the average monthly household income
2011 81.9 rose from SGD 8,105 in 2010 to SGD 10,503 in 2014, representing a 5.32% CAGR. An
2012 82.1 aging population coupled with rising affluence could lend support to private healthcare
providers in Singapore.
2013 82.4
2014 82.8 Increased Competition and Waning Attractiveness as Medical Hub
Source: Singstat
The booming healthcare industry in SEA intensified competition within the industry.
Several Singapore-owned private healthcare providers are expanding to other countries,
Net Income Margin % tapping into underpenetrated markets such as China and India. For example, Raffles
Medical Group has acquired a chain of ten clinics in China, Vietnam and Cambodia for
10.00% ~SGD 34 million.
5.00%
0.00% Furthermore, other countries within the region are fast improving their health care
-5.00%
infrastructure, lessening the attractiveness of healthcare services in Singapore. Cost of
treatment in the these countries are more affordable, affecting healthcare demand in
-10.00%
Singapore as patients flock to more affordable alternatives. In addition, SGD has
strengthened considerably, increasing the cost of healthcare services for foreign patients.

Due to the combination of such factors, Singapores attractiveness as a medical tourism

Source: Capital IQ hub is affected; revenues from a key market - Indonesian medical tourists - declined 38%
YoY, from SGD 640 million in 2012 to SGD 463 million in 2013.
Price/Earnings Peer
Shift in Disease Patterns
250
Comparison

200 More people living in SEA are suffering more from non-communicable diseases (NCDs)
150
often known as or diseases of affluence, brought about by the increased adoption of
modern lifestyle habits such as sedentary office work, overeating, consuming fast food,
100
and smoking. NCDs include heart disease, cancer and type-2 diabetes. A 2014 report by
50 consultancy firm BDG Asia reported that NCDs account for an increasing share of deaths
0 in most SEA countries between 2008 and 2012. This trend necessitates greater
healthcare demand, in particular wellness and preventive healthcare services in affluent
Aug-12-2014

Aug-26-2015
May-05-2015
Jan-09-2015
Dec-02-2014

Jun-11-2015
Mar-26-2015
Sep-17-2014

Feb-16-2015

Jul-20-2015
Oct-27-2014

Oct-02-2015
Nov-09-2015

areas.

Industry Wrap-up
AsiaMedic Raffles Medical Increased competition and Singapores waning attractiveness as a medical tourism hub
IHH pose significant headwinds for companies within in industry, including AMAT. However, an
4
 aging population and rising affluence, coupled with a shift in disease patterns within SEA
could alleviate the situation, and prove beneficial for AMAT in the longer term.

Financials
Revenue Growth
Price/Earnings
30.00%
Percentage Change

25.00% AMAT is currently trading at ~22x Price/Earnings which is below its long term average,
20.00% and is also below its closest competitors - Raffles Medical (35.5x) and IHH (68.6x). Based
15.00% on historical P/E and peer comparison, a 30x Price/Earnings multiple for AMAT is
10.00% reasonable. At 30x Price/Earnings, AMAT would trade at SGD 0.097, a 38.31% increase
from todays price of SGD 0.07.
5.00%
0.00% Increase in Gross Profit and Net Income Margin
-5.00% 2011 2012 2013 2014

Source: Capital IQ
From FY2010 to 2014, AMAT gross profit margins hovered around 30%. Going forward,
gross margins are forecasted to increase because of increased aggregated utilization
rates of its screening equipments used in its core business resulting in economies of
Levered FCF
scale, and a payoff of AMATs differentiation and premium pricing strategy.
2.0
1.0 With the successful diversification to other business areas, international expansion and
0
closure of loss-making operations in Shanghai, AMAT net income margin and revenue
growth rate is also forecasted to increase.
(1.0)
(2.0) Cash Flow:
(3.0)
Decrease in FCF

From 2010 to 2015, FCF has been characterized as volatile. However, we expect a
decrease in FCF going forward. There will be an increase in the net cash from operating
Source: Capital IQ
due to an expected increase in net income margins and increase in revenue growth.
Despite an increase in cash flow from operating activities, there will be high cash outflow
for investing activities as we believe AMAT is poised to strengthen its core business by
Total Debt/Equity
making more investments.
45.0%
40.0% Balance Sheet:
35.0%
30.0%
25.0% Increase in Debt to Equity Ratio
20.0%
15.0%
10.0% There is a general historical increase in debt/equity ratio. The debt/equity ratio is expected
5.0% to decrease given the various huge repayments of debt in 2014 and first half of 2015.
0.0% Furthermore, the cash raised from the seasoned equity offering can be used to expand its
business instead of cash. Also, the expected increase in EBT (excluding unusual items)
will help to generate revenue and free cash flow for purchase of equipments and reducing
the companys reliance on debt.
Source: Capital IQ

5
 Valuation
AMAT Growth Rate
Revenue Growth Asia medical tourism is estimated by RNCOS to grow at 22 percent
compounded annual growth rate (CAGR) from 2014 to 2018. Singapores healthcare
Country Singapore Asia
Growth
industry is estimated to grow at a CAGR of 9.9 percent. AMAT would benefit
Rate 9.90% 22% significantly from the growth of both sectors, and coupled with more efficient utilization
of medical equipment and a stronger brand image & reputation, we forecast a
Weightage 0.55 0.65
conservative growth in revenue of 20% year-on-year from 2015-2017.
Weighted
Average COGS and other expenses As AMAT increase the scale of their operations, the
Growth proportion of COGS and other expenses to revenue is expected to decrease due to
Rate 19.75%
economies of scale and closure of their loss-making operations.
Country Singapore Asia
Growth Interest Expenses With the imminent anticipated interest rate hike by the Federal
Rate 9.90% 22% Reserve, we expect interest rates in Singapore to increase. Some bonds or notes are
Weightage 0.5 0.5
expiring in the next few years and would have to be refinanced at higher interest rates.

Weighted PPE In order to meet the expected increase in sales, additional equipment must be
Average brought in to support their operations.
Growth
Rate 15.95%
Cash & Equivalents Additional capital need not be raised to finance their capital
Country Singapore Asia expenditure and working capital needs as there is already a lot of cash lying on their
Growth balance sheet. It does not make sense for a company with a market capitalization of
Rate 9.90% 22% $20M to have $7M of cash parked in the bank, especially in the stable healthcare
Weightage 0.6 0.4 industry. We forecast a gradual decrease in the cash balance over the years as the
company invests in PPE and working capital.
Weighted
Average Debt We assume that AMAT would not raise any additional debt in the near future as
Growth
Rate 14.74% they already have a high debt to equity ratio and there is a tightening credit market.
Nevertheless, we expect them to refinance any notes/borrowings that mature.
Country Singapore Asia
Growth WACC Our team based the risk-free rate on the YTM of 10 years Singapore
Rate 9.90% 22% Government Bonds, equity risk premium based on the historical returns of the STI and
Weightage 0.7 0.3 the beta based on the covariance between daily return of the STI versus AMAT daily
return. We arrived at a WACC of 7.73%.
Weighted
Average Terminal growth in FCFE We expect FCFE to increase at a constant rate of 6% after
Growth
Rate 13.53% the forecast horizon (2018 and beyond). The healthcare sector is expected to grow even
after thirty forty years as the ageing population situation exacerbates. The Singapore
Source: Team estimates and RNCOS
population White paper also predicts that Singapore will have 6.9M people by 2030 and
a large percentage of the population increase would come from the arrival of expatriates,
a major contributor to AMATs revenue. This high growth rate is sustainable even in the
long run because AMAT has an insignificant market share of the lucrative healthcare
sector.

2015 2016 2017

Net income 1.71 2.99 3.80
Add back: 1.95 2.32 2.77
depreciation
Less: CAPEX 2.71 5.46 5.42
Less: Increase in (0.01) (0.52) 0.43
NWC
FCFE 0.96 0.37 0.72

0.072(1.04)
0.96 0.37 0.72 (7.73% - 6%)
Value of equity = (1+7.73%) + (1+7.73%)2 + (1+7.73%)3 + (1+7.73%)3 = 36.42M

Value per share = $0.11 (Upside potential of 53%)

Risks

R1: Challenging Competitive Landscape

Competition within the healthcare services industry is intense as AMAT competes both
domestically in Singapore and abroad. Domestic competition in Singapores healthcare
6
 industry is exacerbated by high staff salary expense and by other larger and more
established healthcare providers that command larger market shares. The growing
prevalence of alternative medical hubs within the region such as Thailand will also
damper AMATs profitability.

However, AMATs convenient and highly flexible services equip it with a competitive
Source: Team estimates advantage over other local competitors. AMAT has built a stellar reputation within the
industry by providing innovative and quality medical services to its customers. It has
won the 2015 Frost & Sullivan award for its achievements despite being a smaller player
in the industry, and has seen increased aggregate utilization of its capacity. This is
because AMAT has built a niche for itself by having strong core competencies in
diagnostic and wellness services that are better than its competitors. Moreover, AMAT
collaborates with specialists from both governments and private hospitals, enabling
them to understand the needs of doctors and patients in terms of its service standards.
Not many private healthcare service providers collaborate with public hospitals due to
high cost but AMAT is able to do so because of its well defined economics of scale and
specialization. Still, AMAT faces stiff competition in the regional arena as AMATs
current differentiation strategy might not be able to compete against the cost leadership
adopted by other regional competitors, as patients flock to more affordable alternatives.
In this aspect, AMATs edge lies with the technological lead that may not be as
sustainable in the long run.

R2: Persistent undervaluation in the long run

The general belief is that markets are inefficient in the short run but would eventually
correct themselves in the long run. Mispriced stocks that have strong fundamentals but
trading below its intrinsic value should be bought and sold when the market price
converge to its intrinsic value. However, in AMATs case, it is a very small company
listed on the catalist board of the SGX, without even a single analyst following the
company. Even though it has strong fundamentals and is undervalued even with the
most conservative estimate, AMAT share price is likely to be depressed because
investors are simply not aware of this hidden gem.

Nevertheless, the true value of AMATs stock can be unlocked or realized if AMAT
becomes the subject of a takeover bid by a renowned healthcare player. If AMAT is able
to deliver strong financial figures in the next few years, they would gain the attention of
other healthcare firms or private equity funds looking to takeover undervalued firms.

R3: Uncertainty in Interest Rates and Further Share Dilution

AMATs Total Debt/Equity Ratio has increased sharply from 1.6% in 2010 to 40.3% in
2015. Evidently, the company is heavily reliant on debt financing with a 27.1% on long-
term Debt/Equity Ratio and a 13.2% short-term Debt/Equity Ratio. The high debt
financing increases the risk of default. AMAT has also high EBIT/Interest expense and
EBITDA/Interest expense ratios of 2x and 11x respectively.

Further, should interest rates be raised too quickly after an extended period of record
low interest rates, AMATs ability to repay its debts might be affected. Therefore given
its high debt financing ratios, AMAT might have to rely on equity financing in the future
to finance its projects. This will result in further share dilution, a negative outcome for
existing AMAT shareholders. As of LTM, however, AMAT has been able to generate
sufficient profits and has sufficient retained earnings to facilitate future projects and debt
repayment, thus reducing the need to raise funds through equity financing.

Conclusion

Our fundamental analysis, company analysis, industry analysis, corporate governance

analysis, discounted cashflow analysis, relative valuation analysis and M&A analysis all
pointed to one clear conclusion: Asiamed is a definitely a good buy and our group
hereby issue a Strong Buy recommendation for AMAT with a target price of $0.11.

It is not just our group that reached the conclusion. Luye Medicals Group acquired 28.15%
of AMAT shares in an off-market transaction at a SGD 0.018/ share in 2015. The
transacted price is at a 150% premium of the market price at that time, which represents
the true value that a rational investor sees in AMAT. As it was an off-market transaction,
retail investors and other institutional investors were not given the chance to cash out.
But our group foresees that AMAT would be the subject of a full-fledged takeover bid in
the next 3 to 5 years and investors would be able to cash out with a very decent profit.
7
However, given the lack of analyst coverage and low trading volume, we foresee that in
the short term, AMATs share price is still going to remain depressed. AMAT will thus
not be suitable for an investor with a time horizon of less than one year.

8
Appendix 1

Porters 5 Forces
Threat of New Significant capital investment is required for companies to serve the target segment AMAT
Entrants: 2/4 serves. A MRI scanner costs approximately SGD1.5 million while a PET scanner costs SGD3
million and up. In addition, such scanners require large spaces which might be unavailable due
to space constraint. For the case of a MRI scanner, it requires around 1,000 sq ft of space.

Furthermore, specialised radiologist technicians have to be engaged to operate these machines,

which incurs high operation costs. These factors create high barriers of entry for any potential
entrants.

Bargaining Power Suppliers refer to suppliers of expensive equipments (MRI scanners etc) of AMAT core business
of Suppliers: 2/4 areas. Suppliers have high bargaining power because firstly, they often offer products that are
differentiated i.e. advanced technology of MRI scanners developed using their own R&D
technology. Secondly, suppliers do not depend heavily on any particular company, including
AMAT, for a significant portion of their revenues as there are many international healthcare
service providers that purchase equipments from them.

Bargaining Power Buyers face low or no switching costs as they can easily switch between the various healthcare
of Buyers: 2/4 service providers in Singapore and overseas. Also, AMAT scanning services are standardized
i.e. providing scans for patients. However, AMAT attempts to perform differentiation in terms of
its convenience and flexibility and therefore, reduces the bargaining power of buyers.

Threat of The threat of substitutes comes from outside the healthcare industry. Currently, there are no
Substitutes: 1/4 substitutes that are outside from the healthcare industry that can provide the screening services
that AMAT provides.

Competitive There are several key healthcare providers in the industry that are larger than AMAT. Examples
Rivalry: 4/4 include Raffles Medical Group and IHH Healthcare. These players pose a threat to AMAT as
they serve a similar target segment and have more resources than AMAT which provides them
with greater leverage to gain market share. Furthermore, as these companies have made
strategic commitments (investing in the equipment): there are high exit barriers, which increases
competitive intensity.

9
Appendix 2: Forecasted Balance Sheet

Balance Sheet
Balance Sheet as of:
Dec 31 2015 Dec 31 2016 Dec 31 2017
Currency SGD SGD SGD
ASSETS
Cash And Equivalents 7.539 6.992 6.93
Short Term Investments 0.529 0.581 0.564
Total Cash & ST Investm ents 8.068 7.572 7.494

Accounts Receivable 1.50 1.65 1.82

Other Receivables 1.01 1.11 1.22
Notes Receivable 0.94 1.03 1.13
Total Receivables 3.447 3.791 4.171

Inventory 0.301 0.331 0.364

Prepaid Exp. 0.174 0.214 0.198
Other Current Assets 0.3 0.3 0.3
Total Current Assets 12.289 12.208 12.526

Gross Property, Plant & Equipment 14.82 19.11 22.19

Accumulated Depreciation (9.01) (11.33) (14.10)
Net Property, Plant & Equipm ent 5.804 7.775 8.091

Long-term Investments 1.82 2.01 2.21

Goodw ill 2.124 2.124 2.124
Other Intangibles 0.044 0.044 0.044
Loans Receivable Long-Term 0.568 0.561 0.551
Deferred Tax Assets, LT - - -
Other Long-Term Assets - - -
Total Assets 22.655 24.72 25.544

LIABILITIES
Accounts Payable 0.622 0.723 0.725
Accrued Exp. 0.707 0.757 0.75
Short-term Borrow ings 1.0 1.0 1.0
Curr. Port. of LT Debt 0.259 0.292 0.309
Curr. Port. of Cap. Leases 0.644 0.759 0.775
Curr. Income Taxes Payable - - -
Unearned Revenue, Current 0.258 0.344 0.374
Other Current Liabilities 1.579 1.906 1.501
Total Current Liabilities 5.069 5.784 5.436

Long-Term Debt 0.587 0.615 0.613

Capital Leases 1.471 1.645 1.636
Def. Tax Liability, Non-Curr. 0.078 0.053 0.059
Other Non-Current Liabilities 0.611 0.611 0.597
Total Liabilities 7.816 8.708 8.34

Common Stock 21.951 21.951 21.951

Additional Paid In Capital
Retained Earnings (6.29) (5.16) (4.01)
Treasury Stock (0.003) (0.003) (0.003)
Comprehensive Inc. and Other (0.607) (0.607) (0.607)
Total Com m on Equity 15.046 16.185 17.335

Minority Interest -0.207333333 -0.172777778 -0.13037037

Total Equity 14.839 16.013 17.205

Total Liabilities And Equity 22.655 24.72 25.544

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Appendix 3: Forecasted Income Statement

Income Statement
For the Fiscal Period Ending
Dec 31 2015 Dec 31 2016 Dec 31 2017
Currency SGD SGD SGD

Revenue 22.554 27.065 32.477

Other Revenue 0.459 0.344 0.23
Total Revenue 23.013 27.409 32.707

Cost Of Goods Sold 14.522 17.427 20.912

Gross Profit 8.491 9.982 11.795

Selling General & Admin Exp. 2.037 2.445 2.933

Depreciation & Amort. 1.949 2.321 2.77
Other Operating Expense/(Income) 3.302 3.933 4.693

Other Operating Exp., Total 7.288 8.699 10.396

Operating Incom e 1.202 1.283 1.398

Interest Expense (0.196) (0.235) (0.282)

Interest and Invest. Income
Net Interest Exp. (0.196) (0.235) (0.282)

Income/(Loss) from Affiliates 0.278 0.291 0.236

Other Non-Operating Inc. (Exp.) - - -
EBT Excl. Unusual Item s 1.284 1.34 1.353

Merger & Related Restruct. Charges - - -

Gain (Loss) On Sale Of Assets - - -
Asset Writedow n - - -
Other Unusual Items - - -
EBT Incl. Unusual Item s 1.284 1.34 1.353

Income Tax Expense 0.193 0.201 0.203

Earnings from Cont. Ops. 1.092 1.139 1.15

Net Incom e to Com pany 1.092 1.139 1.15

11
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