Singapore O&G Ltd - UOB Kay Hian 2015-09-03: Go Forth And Multiply.

SINGAPORE O&G LTD 41X.SI

Go Forth And Multiply

In yet another attempt to shore up birth rates, Singapore’s Prime Minister Mr Lee Hsien Loong announced a slew of grants and baby bonuses during the recent National Day Rally. SOG is a likely beneficiary of such pro-family policies as the group derives a majority of its revenue from the obstetrics segment.
In addition, the group is on track to deliver solid results and is a resilient dividend play amid Singapore’s volatile equity market.

The push for pro-family policies continue as Singapore’s Prime Minister Mr Lee Hsien Loong announced a slew of grants and baby bonuses to help foster closer familial ties and raise birth rates during the National Day Rally on 23 Aug 15. Amongst the other incentives, all babies born from 2015 onwards will get an extra S$2,000 in Baby Bonus and an additional S$1,000 in Medisave grants.
In addition, government-paid paternity leave will also be increased by one week, bringing it to a total of two weeks.
We think such measures will help defray child-raising expenses and spur growth in the nation’s total fertility rate (TFR). This bodes well for SOG as the number of baby deliveries is likely to increase as a result of a rising TFR. We estimate that SOG’s obstetrics revenue will grow at a 3-year CAGR of 14.5% and contribute to 57% of total 2015 revenue.

Currently, SOG has in place a team of doctors which we think can drive strong organic growth. With a good mixture of senior doctors like Dr Heng Tung Lan and relatively junior specialists like Dr Choo Wan Ling and Dr Natalie Chua Wei Lyn, we think there is much headroom for growth in terms of patient volume and average charges. New joiners Dr Cindy Pang and Dr Radhika Lakshmanan are likely to further boost top-line and we approximate that the duo will contribute to 8.2% of SOG’s 2015 revenue. In addition, we think SOG will continue to seek out growth opportunities and we do not rule out the possibility of expansion into other high-growth countries or regions in the near term.

Although SOG intends to distribute up to 90% of its net profit in dividend payouts, we have conservatively assumed an 80% payout for 2015. This implies decent 2015-17 dividend yields of 2.9-4.0%.
Given that SOG is debt-free, highly cash generative and growing in profitability, we think there is minimal downside risk to its payout commitments.
SOG paid an interim dividend of 0.88 S cents/share in 1H15 which implies a 71% payout ratio.

Our earnings estimates remain unchanged as we expect its 2015 net profit to grow 19% yoy to S$5.1m. SOG’s 1H15 net profit of S$2.7m represents 54% of our full-year estimates.
Maintain BUY with an unchanged target price of S$0.87 based on the industry’s average PEG ratio of 1.71x. We have conservatively adopted the industry’s average despite SOG having the potential to grow quicker than some of its larger comparables such as Talkmed and Raffles Medical.

Bennett Lee CAIA | http://research.uobkayhian.com/ UOB 2015-09-03

BUY Maintain BUY 0.87 Same 0.87