Singapore O&G - UOB Kay Hian 2016-02-05: Strong Momentum In 2015 To Continue In 2016

SINGAPORE O&G LTD 41X.SI

SINGAPORE O&G LTD (SOG SP) - Strong Momentum In 2015 To Continue In 2016

Singapore O&G (SOG) remains a compelling healthcare stock, with an attractive dividend yield of > 4% and strong EPS growth (3-year EPS CAGR of 23%, ending 2018).

In Dec 15, SOG completed the acquisition of Dr Joyce Lim’s aesthetic businesses. This acquisition offers synergistic benefits to SOG as it allows SOG to offer aesthetic services and to tap on Dr Joyce’s expertise to grow its aesthetic medical professional base.

SOG announced the recruitment of a breast surgeon and cancer specialist, Dr Lim Siew Kuan, who previously worked at Changi General Hospital.
We expect to see a ramp up in organic growth going into 2016, with the potential recruitment of an aesthetics as well as an Obstetrics and Gynaecology (O&G) medical professional.
The recruitment of a paediatric service professional is also very likely, and will bring SOG one step closer to becoming a one-stop medical centre for women.

For 2015, SOG recorded a net profit of S$5.3m, (+ 25.7% yoy), which exceeded our expectation by about 5%. Revenue grew 21.2% yoy, on full-year contribution of S$1.5m from its new cancer specialist clinics and an increase in patient loads which generated S$1.4m for the O&G segment.

Its total DPS of 2.03 S cents is slightly better than our estimate, implying a 87% payout vs our estimate of 80%. For 2016-18, we have adjusted our payout estimate upwards to 85%.

While the cancer-related segment posted about a 16-fold revenue increase for 2015 as compared with 2014, its operating losses increased by 30.6% yoy. As the cancer business is only starting to pick up and with Dr Lim coming on board, we expect operating losses for this segment to continue into 2016. However, we understand that Dr Lim, however, is likely to follow in the footstep of Dr Cindy Pang, who turned profitable in less than a year.

SOG’s near term focus will be on integrating Dr Joyce’s aesthetic practices.
We understand Dr Joyce Lim’s business could contribute net profit of about S$2.5m, with a net margin ranging between 28- 33% in 2016. We see further upside from product development as well as cross selling from referrals.
We have raised our 2016-18 profit estimates by up to 1.7% to factor in higher pricing (10-15%) for Dr Heng’s services.
We believe Dr Heng is operating at full capacity and in our view, her fees are underpriced compared with the market benchmark, hence there is still upside potential.
Based on our new estimates and a mean peer comp P/E of 26.6x, we have a revised PE based target price of S$0.96 (previously S$0.90).

Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2016-02-05

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.96 Up 0.90