TMCLife ... Aug12

Inet Research ...

- TMC Life’s (TMC) 4QFY12 revenue was as expected but bottom line was ahead of our projections due to lower-than-expected operating expenses and finance costs. The better-thanexpected cost management in 4QFY12 is a positive turning point for the group in our view.

- 4QFY12 revenue improved by 15.4% YoY boosted by higher patient load at the hospital as well as increased number of IVF patients trying for lunar year “dragon babies”.

- We value TMC at RM0.38 per share, based on an RNAV method in the absence of meaningful profits at the moment. In arriving at our RNAV estimate, we assumed a 15x PER on the profitable fertility operations, added our estimated book value for the hospital and the group’s estimated net cash position. BUY maintained.

2. Business Description
TMC Life Sciences Berhad (TMC) is an investment holding company. The group, through its subsidiary,
operates Tropicana Medical Centre, Kota Damansara (TMCKD), which is its flagship multidisciplinary tertiary 180-bedded medical centre. Tropicana Medical Centre, Penang (TMC Penang) provides a complete chain of medical services for fertility, women and children health. TMC Fertility Centre offers a multifaceted and range of fertility treatment.

3. Key Investment Risks
Key investment risks for the stock include:
a) Economic uncertainties due to inflationary pressures and global economic shocks, which would affect
existing and potential patients’ spending power on the group’s private healthcare services;
b) Migration of key specialist doctors and medical support staff;
c) Rising cost of training and retaining key medical support staff;
d) Intense competition from other local and regional healthcare providers.

4. Recent Developments
On 18 Sep 2008, TMC entered into an MOU with Berjaya Corporation Berhad and Viet Ha Corporation to establish a formal relationship in order to jointly carry out activities relating to the design, construction,
furnishing, equipping and operating of a hospital in or near Hanoi, Vietnam. On 19 Sep 2011 the parties to the MOU mutually agreed to extend the duration of the MOU for a further period of 12 months from 17 Sep 2011 until 17 Sep 2012.

On 22 Dec 2011, TMC completed the following:
a) renounceable rights issue of 200.6m new ordinary shares of RM0.10 each in TMC together with 401.2m
free new detachable warrants at an issue price of RM0.30 per rights share on the basis of one rights share
together with two free warrants for every three existing ordinary shares of RM0.10 each; and

b) increase in authorised share capital from RM100m comprising 1tn shares to RM200m comprising 2tn
shares. Of the total rights proceeds of RM60.2m, RM39m has been utilised for repayment of borrowings, RM10m has been earmarked for capital expenditure, another RM10m for working capital and the remaining funds for related expenses.

On 16 Jan 2012, TMC announced the resignation of CEO, Mr Francis Lim Poon Thoo. On the same date, TMC announced the appointment of Singaporean, Dr Wong Chiang Yin as Group CEO in addition to his role as Executive Director.

5. Earnings Outlook
Since the entry of new major shareholders and top management from 2H 2010, TMC has seen some positive changes including better cost management as well as repayment of borrowings, leading to lower operating expenses and financing costs. Recent quarterly results have also shown QoQ improvements in revenue, which suggests effective marketing efforts both locally and around the region.

We are projecting a turnaround in earnings for the group in FY2014F, largely supported by smaller projected losses at hospital services, continued improvements at the fertility division and lower financing costs. Efforts to boost the group’s revenue base include the addition of specialist doctors, new hospital beds and stepping up marketing efforts both locally and regionally, tapping into the Indonesian, Cambodian, Indian, and Indo-China markets.