Singapore O&G - DBS Research 2017-02-17: Baby growth spurts

Singapore O&G - DBS Vickers 2017-02-17: Baby growth spurts SINGAPORE O&G LTD. 41X.SI

Singapore O&G - Baby growth spurts

  • FY16 net profit up 65% y-o-y to S$8.8m.
  • Organic operations 26% higher y-o-y; new dermatology division contributed 30% of FY16 earnings, and met minimum guarantee.
  • Hopes to commence Paediatrics division in 2H17.
  • Final dividend 1.57 Scts, total in FY16 was 3.1 Scts.



Maintain BUY rating, raised TP to S$1.60. 

  • We maintain our BUY rating and remain positive on Singapore O&G (SOG)’s growth prospects. Key potential catalysts are: 
    1. better-than-expected growth from its cancer and dermatology divisions, 
    2. expansion into new specialisations such as paediatrics, and 
    3. better-than-expected improvement in margins.


Strong FY16 results across all divisions. 

  • FY16 net profit grew 65% y-o-y to S$8.8m, with the contribution from Dr Joyce Lim (met minimum project guarantee) offset by an implicit discount to the deferred payment for acquisition of Dr Joyce Lim’s practice. 
  • Excluding the impact from the implicit discount, net profit grew 73% y-o-y to S$9.3m, in line with the street. 
  • Key positives from the results: 
    1. increase in obstetrician & gynecology (O&G) division’s market share to 7.5%, 
    2. Dr Joyce Lim has met her minimum profit guarantee; 
    3. cancer division turned profitable and continues to grow; and 
    4. management hopes to start a new division - paediatrics - in 2H17.


Expanding into higher-margin complementary specialised services. 

  • With the O&G business now achieving >1,500 births per annum, management believes that O&G would be able to support a new paediatrics division. Management hopes to start the new division in 2H17. 
  • Management continues to explore new opportunities both in terms of new specialisations and/or new markets. We believe other complementary services to explore include in-vitro fertilization (IVF), child care and imaging.


Valuation

  • We revised our FY17F-FY18F earnings by -2% to 5% to factor in the implicit discount to deferred payment and marginal contribution from potential commencement of paediatrics division. 
  • We raised our target price to S$1.60 (from S$1.50), based on the average valuation using 30x PE and DCF valuation.


Key Risks to Our View

  • Key risks that could derail our thesis include 
    1. Execution risks due to lack of track record, 
    2. highly dependent on a few key doctors, and 
    3. low stock liquidity.




Rachel TAN DBS Vickers | Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2017-02-17
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.600 Up 1.500





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