Japara Healthcare Limited

JHC Details

Indicative Proposal to Acquire JHC: Japara Healthcare Limited (ASX: JHC) is engaged in residential aged care facilities in Australia. The company owns over 47,000 resident places and approvals for places nationally across approximately 40 facilities located in Victoria, New South Wales, Queensland, South Australia, and Tasmania. Mary Health Care Ltd (Calvary) has made an indicative, non-binding proposal to acquire 100% shares of JHC. As per the announcement made on 30 April 2021, Calvary indicated a proposal price of $1.04 per share considering no further dividends or reduction in capital from the date of the proposal. JHC has not yet decided on the advantages of the proposal made by Calvary. JHC has mentioned that there is not a certainty at the movement if the transaction would take place.

Change of Director’s Interest: JHC’s director, Linda Bardo Nicholls has acquired additional 11,158 shares on 10 March 2021 for total consideration of $8,368.50. After acquiring additional shares, Linda holds 107,052 of direct securities.

1HFY21 Financial Highlights: The company has registered an increase in revenue from ordinary activities of $220.3mn in 1HFY21 as compared with $212.6mn in 1HFY20. The company has posted a loss of $9.51mn in 1HFY21 due to higher costs in response to the COVID-19 pandemic. The company has registered an increase in its cash position to $51.49mn as on 31 December 2020 as compared with $48.28mn as on 30 June 2020.

H1FY21 Results (Source: Company Reports)

Key Risks: The company has seen higher labour costs and other operational costs during COVID-19 situation, which has impacted the profitability of the company. The company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in financial losses for the company. The company is exposed to movement in the interest rates. Any severe changes in interest rates may lead to higher costs for the company.

Outlook: The company is expecting its Corymbia, Belrose, NSW (Greenfield Project) to open in 2HFY21, offering 102 new premium rooms. Other greenfield projects are expected to add ~220 new places in 2HFY21. The company has brownfield developments across different cities in Australia, which are likely to be completed in FY22-23. The company is focusing on recovery in occupancy, going forward. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of JHC gave a return of ~36.48% in the past one month and a return of ~35.57% in the last three months. The current market capitalisation of JHC stands at ~$213.79mn as of 30 April 2021. The stock is currently trading at its 52-week high price of $1.010. On the technical analysis front, the stock has a support level of ~$0.966 and a resistance of ~$1.042. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price near to the current market price. We believe that the company can trade at a slight discount as compared to its peer median, considering losses booked in 1HFY21 and associated risks with the business. For this purpose, we have taken peers Healius Ltd (ASX: HLS), Regis Healthcare Ltd (ASX: REG), Estia Health Ltd (ASX: EHE) to name a few. Considering the spike in the stock price over past months, current trading level and valuation, we are of the view that most of the positive factors of the company have been discounted at current trading levels. Hence, we suggest investors to book profits and recommend a “Sell” rating on the stock at the current market price of $1.01, up by ~26.249% as on 30 April 2021. The stock has seen a significant rise of 26.249% on 30 April 2021 due to a news related to an indicative proposal to acquire JHC by Mary Health Care Ltd (Calvary).

JHC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

VIP Gloves Ltd 

VIP Details

March 2021 Quarter Highlights: VIP Gloves Ltd (ASX: VIP) is engaged in manufacturing of Nitrile gloves in Malaysia. The company with its subsidiary, KLE Products Sdn. Bhd. (KLE) in Malaysia, manufacturers a range of roller conveyor chains and holder sets according to customer specifications. The company has updated on its quarterly activities on 30 April 2021. The company has successfully commissioned two more lines (Line 5 and Line 6) in Q3FY21 for full scale production in April 2021. VIP has now increased its nitrile glove production capacity to 64mn pieces per month in Q3FY21, an increase of 28% from Q22020. The company has posted a 31% QoQ increase in its revenue in Q3FY21 with 19% QoQ increase in average selling price. The company has paid a dividend of 0.18 cents per share on 31 March 2021. VIP has been awarded by CE EU certificate in January 2021.

Growth in Average Selling Prices (Source: Company Reports) 

1HFY21 Financial Highlights: The company has registered an increase in its revenue to $20.97mn in 1HFY21 as compared with $5.25mn in 1HFY20 on the back of decent demand for nitrile gloves. The company has registered a profit of $2.25mn against a loss of $0.99mn in 1HFY20, mainly due to increase in average selling price for nitrile gloves on strong demand. The company has seen a decline in its cash and cash equivalent situation to $1.41mn as on 31 December 2020 as compared with $2.05mn as on 30 June 2020.

Key Risks: The company is mainly engaged in production of nitrile gloves in Malaysia and any disruption in the supply chain could lead to a decline in sales for the business and may lead to financial loss for the company. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company. The company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in financial losses for the company.

Outlook: After the company has commissioned Line 5 and 6 in Q3FY21, VIP has plans to commission two more lines (Line 7 and Line 8) in August/September 2021, considering a continued demand for nitrile gloves. The addition of two more lines will take the production capacity to 78mn pieces per month from 64mn pieces per month currently. 

Stock Recommendation: The stock of VIP gave a return of ~22.44% in the past one month and a return of ~3.44% in the last three months. The current market capitalisation of VIP stands at ~$39.29mn as of 30 April 2021. The stock is currently trading below the average 52-week price level range of ~$0.031-~$0.220. On the technical analysis front, the stock has a support level of ~$0.053 and a resistance of ~$0.07. Considering the rise in top line and bottom line in H1FY21, expansion of the company’s production line, decent demand for its products, we recommend a “Hold” rating on the stock at the current market price of $0.060, up by ~19.99% as on 30 April 2021, on the back of robust Q3FY21 performance and decent demand for its product.

VIP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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