ISEC Healthcare - Maybank Kim Eng 2015-11-08: Eyes on the Targets

ISEC HEALTHCARE LTD 40T.SI

ISEC Healthcare (ISEC SP) - Eyes on the Targets

3Q15 in line. MYR revenue rose a healthy 13% YoY, but whittled down to minus 2% YoY in SGD-terms by weak MYR.
4Q15 likely stronger, but results not the main stock driver. Instead, we expect M&A deal flow to accelerate next year.
Maintain BUY. TP stays at SGD0.40, based on 27x FY16 EPS, 10% discount to peers.

Results in line. 3Q is not historically the strongest quarter for ISEC.
Topline rose 28% YoY, and NP jumped 270% mainly off a low base last year that had not yet included Dr Lee’s contributions.
9M15 NP accounted for 75% of FY15E forecast excluding expected provisions in 4Q15.
MYR weakness dragged down Malaysia contributions in SGD. In MYR terms, Malaysia revenue rose a healthy 13% YoY, bolstered by higher patient visits, but fell 2% in SGD-terms. This was buffered by Dr Lee’s contributions which remained constant.
We expect 4Q15 to be better, as corporate patients on company benefits and insurance business tend to bunch up at year-end.
There will be a c.SGD2m provision for the Novena clinic closure but this is already factored into our NP forecast of SGD3.5m.

We expect quarterly results to be secondary to M&A deal flow as share price driver.
We have already included contributions from SSEC, the pending acquisition in Melaka, in FY16. The deal is yet incomplete but we do not expect any obstacles. Since it was announced in mid-Oct, the stock has recovered to slightly above IPO price.
The risk/reward remains favourable as the share price is in a M&A sweet spot.
Catalysts next year include potential acquisitions in Vietnam, Taiwan, Indonesia and likely more in Malaysia.
In addition, the closure of Novena will mean significantly lower costs of over a million dollars a year. This will further boost the bottomline.
Maintain BUY, with TP of SGD0.40, based on 27x FY16 EPS, set at a 10% discount to its peer average of 30x.

Gregory Yap Maybank Kim Eng | John Cheong Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-08

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.40 Same 0.40