Prodia prices IPO to sell on Trump effect

The diagnostics company takes a realistic approach to pricing as foreign investors turn net sellers across Southeast Asia.

Prodia Widyahusada TBK priced its initial public offering just off the bottom of its indicative price range on Friday, acknowledging that primary markets have weakened since Donald Trump became US President-elect.

The Indonesian diagnostics company has been Southeast Asia's first to launch and price an IPO since the US Presidential election wrapped up on November 9. But like Hong Kong's VPower, which also priced its IPO on Friday, Prodia did not try to push pricing too far.

Instead, the company opted for a level that was slightly off bottom of the range at 6,500 per share raising $115 million. It had initially marketed the 234.475 million share deal on a range of Rs6,250 to Rs8,000.

Trump's win has only exacerbated a market backdrop that has already been deteriorating for a few months. Foreign investors turned net sellers on Indonesian equity markets in September, the second Asian market to turn after investors began to sell off the Philippines in August.

The move has accelerated over the past two weeks, with a particularly large $1.8 billion outflow on November 14 across emerging Asia ex-China, according to Credit Suisse research. In Indonesia, foreigners sold a net $251 million in the month to September 16, $176 million in the month to October 16 and $287 million in the month to November 17.

"Unfortunately the Jakarta Stock Exchange Composite Index came off 5% during the market period and the rupiah dropped 3%," one syndicate banker commented.

"The funds which purchased this deal weren't macro players but the underlying environment clearly had an impact," the banker added. "However, it was still a great result to get this deal done given everything that's happened over the past couple of weeks."

Unsurprisingly, allocations were highly concentrated, with the top three long-only accounts taking 60% of the overall deal. Institutions received 99%, with the retail IPO comprising the remaining 1%. 

The retail offering will run from November 30 to December 2 and is the minimum allowed under Indonesian securities law. 

Of the institutional portion, foreign institutions received 80% of the total. 

The IPO has two settlement dates: December 6 for the primary shares, which comprised 20% of the enlarged share capital and December 7 for the secondary shares, which comprised a further 5%. 

The long delay between pricing and settlement means participating funds have needed to take a long-term view given their exposure to further selling across the market. This should come as little surprise.

Credit Suisse analysts say the Indonesian market is vulnerable since it is Asia's second most expensive after India on a current account versus price-to-book basis. (Indonesia has a current account deficit of 2.3%, while the country's stock market trades at an average price-to-book of 3.4 times.)

At Rp6,500 per share, the deal has been priced at 20 times syndicate consensus forecast 2017 enterprise value-to-Ebitda and 47 times 2017 forecast price-to-earnings. 

One piece of good news during marketing was that the group's two nearest comparables have both held up fairly well over the past few weeks.

The country's largest listed hospital operation, Mitra Keluarga, is trading at the same level it was when Prodia launched and is currently valued at 37.5 times 2017 EV/Ebitda.

In terms of business model, the nearest comparable is India's Dr Lal PathLabs. It is also at the same level it was when Prodia launched and is valued at 33 times 2017 EV/Ebitda. 

Prodia has been valued at a discount to Dr Lal because it is smaller and has slightly worse margins. Dr Lal runs a franchising model for its collection centres and reported an Ebitda margin of 27.1% in the six months to June 30 compared to Prodia's 15.5%. 

Prodia is using the IPO proceeds to ramp up expansion and says it hopes to open a further 33 branches over the next five years. At the end of June, it had 251 outlets and 128 clinical labs across 104 cities and 30 provinces. 

The lead managers for the IPO were Citi, Credit Suisse and First Indo Securities.



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