UOB Kay Hian (UOBKH) is recommending investors of Singapore Medical Group (SMG) reject TLW Success’ current offer and wait for a potentially better privatisation deal, though Lim & Tan Securities has flagged the risk of the deal falling through.

TLW Success is an investment vehicle owned by 3 top executives at SMG. On Sep 13 it launched an offer to take the company private at S$0.37 per share in cash or 1 new share in the offeror.

In a report on Thursday (Sep 22), UOBKH analyst Llelleythan Tan noted that the offer price falls shy of its S$0.45 target, which was reduced from S$0.53 previously to account for weak H1 FY2022 results.

He also noted that the offer represents a valuation multiple of 11.5 times FY2021 price-to-earnings (PE), which is lower than that of the recent takeover offer of its peer Singapore O&G at a PE ratio of around 16 times.

“Armed with better overseas exposures in Vietnam, Indonesia and Australia (compared to Singapore O&G), we think there could be potential upside to SMG’s offer. As the offer is not final, the offer price and/or the acceptance condition are subject to revision,” said Tan.

“We think SMG should be valued closer to the recent general offer of Singapore O&G, given (SMG’s) expansion in high-growth markets such as Vietnam’s aesthetics clinics, telemedicine through HiDoc, as well as solid organic growth initiatives from the addition of medical specialists,” he added.

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While the offer price for SMG is also below Lim & Tan’s target price of S$0.43 per share, the research house views the deal as “reasonable but not compelling” considering the current depressed market environment.

In a Sep 14 note, it highlighted the possibility of the offer falling through like it did for Frasers Hospitality Trust : ACV 0%, which the research house noted to have “crashed” 22 per cent post the deal’s failure.

“We are thus advising short-term investors who were lucky enough to buy in before the deal to either accept the cash offer, await the recommendation of the independent financial advisers, or ‘take profit’ if (the share) price goes above the offer price,” said Lim & Tan’s research team. 

“Medium to longer-term investors can opt to go private with the promoters via private ownership of the company alongside the promoters and await mid to longer-term returns.” 

Shares of SMG closed S$0.005 or 1.4 per cent higher at S$0.37 on Thursday.