Closes down Novena centre
- Closure of ISEC Singapore will lead to SGD2.6m charge in FY15 but SGD1.3m pa in cost savings from FY16 onward.
- Cut FY15 EPS by 34%, raise FY16 EPS by 12%.
- Stock weighed down by lack of M&A progress. Maintain HOLD. TP lowered from SGD0.44 to SGD0.40, based on 32x FY15 EPS following removal of M&A premium.
What’s New
- ISEC announced it will close ISEC Singapore, its loss-making eye centre at Mount Elizabeth Novena Specialist Centre.
- It will take a SGD2.6m charge for closure-related costs in FY15.
- Despite efforts by the three-doctor team to drum up business since it opened in Aug 2014, keen competition in Singapore has prevented it from turning profitable. The doctors, including medical director Dr Cordelia Chan, have resigned and the clinic will be closed in Dec 2015 after they serve their notices.
- ISEC expects to save SGD1.3m pa from FY16 from the closure, and will now put more attention on its major profitable eye centre at Gleneagles Hospital and its other new clinics in Sibu and Penang, which look more promising.
What’s Our View
- The SGD2.6m charge includes salaries till end-2015, renovation costs and the remaining property lease. It is likely to be taken in 4Q15. If it is able to sub-lease the space before then, the charge may be reduced by SGD0.6m. The equipment will be sold at NAV to either its Sibu or Penang centres, with the Lasik suite likely going to Penang as there is already a practising Lasik specialist there.
- We lower our FY15F EPS by 34% to account for the closure charge and raise FY16F EPS by 12% to factor in the cost savings. ISEC’s challenges with the Novena centre are well-flagged.
- However, its share price has been weighed down by the slow progress of its overseas M&As.
- Several smaller M&As are in progress, including Vietnam, but more significant ones such as Taiwan are still dragging on with no certainty on when they can be completed.
- We lower our TP to SGD0.40, based on 32x FY15 EPS following the removal of the M&A premium.
- Stay HOLD.
(Gregory Yap, John Cheong)
Source: http://www.maybank-ke.com.sg
