Rowsley's third revival act in a decade should prompt caution

Who doesn't love a company that's on the cusp of getting another shot at reinvigorating itself, huh? Such fascination, albeit premature at this point, led traders to lap up Singapore-listed Rowsley's stock last week after the company unveiled a ground-shifting all-share S$1.9 billion deal to revive its fortunes and move into the largely lucrative healthcare space.

But lest one forgets, this follows five years after the firm, controlled by billionaire Peter Lim, took its chance on a S$580 million transformational plan to inject a huge plot of waterfront land in Malaysia's then-booming Iskandar and one of Singapore's oldest architect firms RSP into the company.

Then, the reverse takeover deal aimed at turning the firm into a real estate bigwig had also galvanised the stock but alas till today, it has yet to live up to its lofty expectations.

This wasn't its first makeover bid that had set off a buying frenzy of its shares. Back in 2007, Rowsley, then somewhat dull with its business of paper products, hogged the spotlight with a S$2.7 billion RTO plan involving a China solar power company.

The deal, despite misgivings among observers over the perceivedly ambitious net profit guarantee by the Chinese firm, led to a sharp spike in its stock price but eventually tumbled when the deal bumped after months of delay.

The FOMO (fear of missing out) fever, very much a deja vu moment for the counter, has once again hit the counter - for the third time.

Punters cared little that Rowsley's latest healthcare deal was merely hanging on a "non-legally binding term sheet" with Mr Lim or that the announcement was devoid of details on the performance of the healthcare assets it is about to scoop up from its majority owner.

The stock price doubled from 7.3 Singapore cents to 14.1 Singapore cents on a single day last Wednesday when the counter resumed trading after a two-day trading halt following the announcement and closed last week at a high of 17.4 Singapore cents - a 138 per cent jump over three days of trading.

Notably, interest had in fact spiked on the Friday (July 14) before the company had called for a trading halt with trading volume vaulting to 64 million shares, a huge pick-up from its average daily traded of some seven million shares prior to the deal announcement with the counter gaining 11 per cent.

This week, however, the stock has been steadily losing ground, finishing at 13.3 Singapore cents on Wednesday - down 24 per cent from last Friday's ascent.

Based on Wednesday's filing to the stock exchange, Rowsley's substantial shareholder Albert Hong - the man credited for building RSP into one of the largest Singapore-based architecture firms and in March this year stepped down as Rowsley's executive chairman - sold 52.73 million shares at about S$9.1 million or an average of 17.2 Singapore cents a share on Monday. As a result, his stake has reduced from 12.04 per cent to 10.92 per cent.

Indeed, there are many things about this deal that requires unpacking. For one, sans details, it appears a tad rich. Mr Lim is injecting his 100 per cent stake in Thomson Medical Pte Ltd and 70.36 per cent stake in Malaysian-listed TMC Life Sciences into Rowsley and in turn will get 25.3 billion new Rowsley shares at an implied 7.5 Singapore cents per share for the assets.

Upon the deal's completion, Rowsley also plans to issue up to 9.48 billion bonus warrants to existing shareholders on the basis of two bonus warrants for every existing share at an exercise price of 9 Singapore cents per share and up to another 9.48 billion additional piggyback warrants at an exercise price of 12 Singapore cents per share.

In short, a significant shares dilution is in store for shareholders.

Based on TMC Life's market capitalisation on Bursa Malaysia, Mr Lim's stake in TMC is worth some S$320 million. That could also mean that Thomson Medical, a firm that the tycoon had taken private seven years ago and was then valued at S$513 million, is now being valued at up to over three times or S$1.6 billion.

Last September, in an interview with The Business Times, Thomson Medical's executive chairman Roy Quek said that the company was making around S$150 million to S$200 million in revenues. Based on net margins of 20 per cent which it was making before the delisting, Thomson Medical might net S$40 million in profits a year, reported The Business Times.

This values the acquisition of Thomson Medical at up to about 40 times earnings - way above Raffles Medical Group's earnings multiples of 32 times but below IHH Healthcare's 50-plus times.

"Agreed - the S$1.9 billion valuation is rich. Should avoid," said a dealer.

"We urge caution", read a note by a remisier from a local stockbroking house in December 2012 when Rowsley shares surged on news of the RTO involving the Iskandar land as it was then merely a non-binding deal and subject to due diligence and final and definitive terms.

If that sounds familiar in the current circumstances - the company's third act - it ought to be a flashing red signal for investors.

Anita Gabriel

27 July 2017