Singapore Medical Group - RHB Invest 2018-02-06: Building The Foundation Of Its IVF Arm

Singapore Medical Group - RHB Invest 2018-02-06: Building The Foundation Of Its IVF Arm SINGAPORE MEDICAL GROUP LTD 5OT.SI

Singapore Medical Group - Building The Foundation Of Its IVF Arm

  • Singapore Medical Group (SMG), together with strategic partner CHA Medical Group, has entered the Australian market through a JV. This JV, in turn, is acquiring a 65% stake in CFC Global Pty Ltd (CFC), Australia’s fourth-largest IVF clinic group. The acquisition would strengthen SMG’s IVF arm. 
  • Going forward, it is keen to use CFC as a foundation to enter into other markets – eg Malaysia, Indonesia, and Vietnam – under a new brand name. 
  • With a turnaround now further validated by both organic and inorganic growth, we maintain our BUY recommendation and DCF-backed SGD0.79 Target Price (36% upside).



JV to acquire 65% of CFC Global Pty Ltd (CFC). 

  • Singapore Medical Group (SMG), together with its strategic partner CHA Medical Group, has entered the Australian market through a JV. The JV is acquiring a 65% stake in CFC Global Pty Ltd (CFC), Australia’s fourth-largest in vitro fertilisation (IVF) clinic group, to strengthen SMG’s IVF segment. The latter is to own 20% of the JV, and would effectively have a 13% stake in CFC.
  • CFC has seven IVF centres and employs nearly 50 doctors in major cities including Brisbane, Melbourne, Sydney, and Adelaide, as well as the Gold Coast. We understand that this investment would be earnings-accretive to SMG, and the acquisition is to be funded by internal cash proceeds.


Foundation and platform to be replicated in other markets. 

  • SMG and CHA Medical Group is likely to use CFC as a platform, as well as a basis to replicate its model in other markets in the Asia-Pacific – eg Malaysia, Indonesia and Vietnam – under a new brand name. It is likely do so in the form of new JVs or by means of acquisitions.


Looking into other medical streams with higher margins. 

  • Management is keen to expand into new medical streams with higher margins like cardiology, dental paediatrics, and further expand into aesthetics. It is also keen on aiming for the premium value space within these medical streams, and focus on providing quality and more sophisticated, higher-value treatments. 
  • However, it is likely to be making smaller acquisitions than before, targeting single-digit multiple acquisitions. Larger acquisitions would be possible – albeit likely with a fund-raising exercise.


Maintain BUY, with an unchanged DCF-derived SGD0.79 Target Price (36% upside).

  • With a turnaround now further validated by both organic and inorganic growth, we maintain our BUY recommendation on Singapore Medical Group (SMG)
  • We also expect it to make more accretive – but smaller-sized – acquisitions in the near term, thereby hastening its growth. It would also be hiring more doctors, while at the same time optimising processes to improve its utilisation rate.
  • We expect a stronger FY18, mainly due to the full earnings accretion from its acquisitions it made in 2017, especially in the paediatrics and gynaecology fields. 
  • The main risk to our forecasts would be a decline in foreign medical tourist arrivals.




Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-06
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.790 Same 0.790



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