ISEC Healthcare : Response to SGX Queries

Query

Response

1.

Is the completion of the Proposed Acquisition and Proposed Subscription inter-conditional? If so, considering that ME Centre, TE Centre and Taiping Eye have not commenced operations/business, what did the Purchaser consider in agreeing to acquire the 5 clinics as a bundle?

The completion of the Proposed Subscription and completion of the Proposed Acquisition while not expressed in the share purchase and subscription agreement ("SPSA") as inter-conditional, are required to occur simultaneously.

The Vendors for IE Centre Sdn Bhd ("IE Centre") and Kampar Eye Sdn Bhd ("Kampar Eye"), namely entities which are to be acquired under the Proposed Acquisition, are (save for one vendor, Tan Hooi Ngea) also the current shareholders of ME Centre, TE Centre and Taiping Eye.

These shareholders are Shin Hoy Choong ("Dr Shin") (who is also the sole shareholder of Taiping Eye), Yong Ked Sheong ("Dr Yong"), Cheng Heng Liang ("Dr Cheng"), Chan Suet Mei ("Dr Chan") and Jane Foo Mei Li ("Dr Foo").

Each of Dr Shin, Dr Yong, Dr Cheng, Dr Chan and Dr Foo (collectively "the Doctors") will terminate his/her existing contract of employment or employment

Query

Response

arrangements with each of IE Centre or Kampar Eye and enter into new employment agreements with IE Centre or Kampar Eye (where applicable) for a fixed term of five (5) years commencing from the Completion Date.

It would therefore be in the interest of the Group to also subscribe for shares in, and have a majority and controlling shareholding interest in, each of ME Centre, TE Centre and Taiping Eye so the interests of the Group are aligned with those of the said Doctors in these entities.

As part of their growth plans prior to the Proposed Subscription, the said Doctors were already in the process of setting up three new clinics (being ME Centre, TE Centre and Taiping Eye) in towns within Perak, Malaysia when the Group negotiated with them. Their objective is to reach out to patients in these towns and to refer patients encountering more complicated or complex eye conditions to IE Centre.

To align the said Doctors' objectives to the Group's objectives and to ensure the said Doctors are committed to the establishment and operations of these three clinics, which serve to complement the business activities in IE Centre and Kampar Eye, the Group agreed to acquire a controlling stake via subscription in each of ME Centre, TE Centre and Taiping Eye of such number of ordinary shares comprising 50% plus 1 ordinary share of the enlarged share capital of each of the aforesaid companies.

2.

"Based on IE Centre's audited financial statements as at 30 June 2021, Kampar Eye's audited financial statements as at 31 December 2021, each of ME Centre's, TE Centre's and Taiping Eye's unaudited financial statements as at 31

The breakdown of the total net profits attributable to each of the 5 clinics as

Query

Response

December 2021, the net profits attributable to the assets acquired for the Proposed Transaction is approximately RM4,301,000."

Please provide breakdown of the total net profits of RM4,301,000 attributable to each of the 5 clinics.

follows (taking into account adjustments and normalisations)1:

IE Centre: net profit of RM3,768,000

Kampar Eye: net profit of RM710,000

ME Centre: net loss of RM87,000

TE Centre: net loss of RM39,000

Taiping Eye: net loss of RM51,000

3.

Please clarify who owns the remaining 50% shareholding in ME Centre, TE Centre and Taiping Eye.

Upon the subscription of 50% plus 1 ordinary share of the enlarged share capital of each of the three entities by ISEC Sdn Bhd (the "Purchaser"), the remaining shareholding will be held by Dr Shin, Dr Yong, Dr Cheng, Dr Chan and Dr Foo of ME Centre and TE Centre, save in the case of Taiping Eye, which Dr Shin holds solely, pending transfers to be made to the other Doctors subject to ISEC Sdn Bhd's approval to such transfers.

4.

Please provide rationale for investing in ME Centre, TE Centre and Taiping Eye at this point as they have not commenced any business as they have not obtained the licence to operate or provide a private healthcare facility or service pursuant to the PHFSA.

Please refer to the Company's response to Query 1 above.

5.

The Purchase Consideration for the Proposed Acquisition of approximately RM56.75 million was arrived based on a PE of 12.5 times.

Please provide the Board's considerations and assessment on the Purchase Consideration, including

Given that the PE multiples of the Group's past acquisitions in Malaysia and Singapore were in the range of 12 to 13 times, the Board considers that the multiple of 12.5 times for the Proposed Acquisition would be reasonable.

Query

Response

whether the 12.5 times PE is a market norm for such acquisitions.

In arriving at the Purchase Consideration, the Company had additionally considered the valuation of similar acquisitions made of other comparable medical practices in Malaysia and Singapore. The 12.5 times PE falls within the range of precedent transactions undertaken by the Group and by other listed healthcare providers..

As stated in paragraph 4.1.3 of the Announcement, the issue price for each Consideration Share is S$0.303 (equivalent to approximately RM0.94) ("Issue Price"), as determined based on the volume weighted average price of the Shares traded on the Singapore Exchange Securities Trading Limited ("SGX-ST") in the thirty (30) trading days immediately prior to the date of the SPSA (excluding the date of the SPSA) ("VWAP").

As stated in paragraph 3 of the Announcement, the Group also considers partial settlement of the Purchase Consideration by way of the allotment and issue of Consideration Shares to be advantageous to the Group as it would conserve the Group's cash reserves and delivers long-term benefit to the Company.

The issuance of Consideration Shares also serves to align the interests of the Doctors and that of the Company and its shareholders.

6.

It was stated that the NTA of IE Centre and Kampar Eye as at 30 November 2021 will be subject to special audit forthwith after the date of the SPSA.

Please clarify why there is a need for a "special audit", and what is the scope of such "special audit".

Please clarify who will be conducting the special audit.

The special audit in relation to the financial statement audit for the financial period up to 30 November 2021 which is not the financial year-end of IE Centre or Kampar Eye. The purpose for the special audit is to provide the Group with reasonable assurance of the financial positions and financial performances of IE Centre and Kampar Eye Centre, specifically for the purpose of this Proposed Acquisition. The financial periods covered for such audit for IE Centre and Kampar Eye are 1 July 2021

Query

Response

What is the implication on the Purchase Consideration in the event the NTA amount is less than the RM2.91 million as stated in the announcement?

to 30 November 2021 and 1 January 2021 to 30 November 2021 respectively.

The special audit is to be conducted in accordance with Malaysian Private Entities Reporting Standard and the requirements of the Companies Act 2016 in Malaysia and will be conducted by existing external auditors of IE Centre and Kampar Eye as commissioned by ISEC Sdn. Bhd.

In the event the NTA amount for IE Centre is less than the RM2.91 million, the Vendors would have to refund the shortfall to the Purchaser.

7.

Please provide a consolidated table showing the shareholdings of each Vendor in the Company after the completion of the Proposed Acquisition of IE Centre and Kampar Eye.

Below is a consolidated table showing the shareholdings of each Vendor in the Company after the Completion of the Proposed Acquisition of IE Centre and Kampar Eye:

Name of VendorNo. of Consideration Shares to be issued and allottedPercentage of Shares held out of the enlarged share capital of the Company following Completion

Shin Hoy Choong

13,127,831

2.3%

Tan Hooi Ngea

-

-

Yong Ked Sheong

4,376,652

0.8%

Cheng Heng Liang

2,625,991

0.4%