INVESTMENT MERIT

- Land for future utilization? The Tropicana Medical Center at Kota Damasara sits on a 6ac land of which only 2ac is utilized by the medical center with the balance used as temporary car park spaces and gardens (i.e. heavily under-utilized). The site is extremely strategic being near residential areas and a future MRT station currently being built in front of the site. Management declined to indicate any plans for the unutilized land, but we believe the group may explore building multi-storey clinics for future rental income. Such an investment would require a cash call despite TMC’s light balance sheet of 0.18x net cash position. Nevertheless, we believe this new venture (multistorey clinic) will excite shareholders as it will enhance its future cash-flow earning stream from rental revenue.

- FY13 results back into the black. 4Q13 revenue improved by 7.6% YoY and 16% QoQ to RM20.6m. For the full year, FY13 recorded earnings of RM11.1m and core earnings of RM2.2m (after stripping off RM8.9m net gains on sale of discontinued operations) which is a big leap from RM6.4m loss in FY12.

- Estimating FY14E earnings of RM4.7m (+114% YoY). We expect FY14E IVF-revenue to grow by 5% YoY while bed-revenue to increase by 21% YoY on the back of higher number of beds and better utilization (est. 60%). Though we anticipate a slower 1Q14 due to the haze and GE, we expect earnings to recover in 2Q14. We estimate better operating margins in FY14 of 6.5% (FY13: 2.8%) while the additional beds will take start to break even in 2H14.

- Dividend. TMCL declared 0.3sen single-tier dividend for FY13 (<1% yield) which translates into a 21.6% payout of reported earnings, and >100% payout of core earnings with the entitlement date yet to be announced.

- Valuations. At the current price of 41.0sen, TMCL is fully valued as it is trading at 23.0x FY14E EV/EBITDA, vis-à-vis our valuation of IHH’s domestic business portion using 22.5x FY14E EV/EBITDA. NOT RATED.

TECHNICALS

- Resistance: RM0.46 (R1), RM0.50 (R2)

- Support: RM0.37 (S1), RM0.34 (S2)

- Comments: TMCLIFE is trading within a well-defined trend channel for the past year. With the share price now trading less than midway from the channel resistance, the reward/ risk ratio favours the bulls. Expect the share price to make its way to RM0.46 in the coming months, and potentially even RM0.50 (channel resistance. Meanwhile, downside is likely to be capped at RM0.37.

BUSINESS OVERVIEW

TMC Life Sciences Bhd was incorporated in 2003 and is an investment holding company, primarily operating a multi-disciplinary tertiary care centre, medical center, and fertility center in Malaysia. The company is also involved in the development, marketing, and management of healthcare programs and provision of gynecological and fertility problem management, as well as consultancy services.

CORE BUSINESS PRODUCTS

- TMC Life Sciences main business segments

(i) Tertiary care centre provides healthcare services in various medical/surgical specialties and subspecialties to local, regional, and international patients

(ii) Medical center offers medical services for fertility, women and children health

(iii) Fertility center provides a range of fertility treatments for couples.

Source: Kenanga