Singapore O&G Ltd - Phillip Securities 2016-06-17: More than stork delivery

SGinvestors.io

SINGAPORE O&G LTD 41X.SI 

Singapore O&G Ltd - More than stork delivery

• Gaining market share by increasing number of clinics, specialties and choices.
• Effects from newly acquired Dermatology and Aesthetic business to kick-in this year. 
• Additional growth pillar (Paediatrics) by 2017.
• Initiate with “Buy” rating and SGD1.00 TP, implying a 25.4% upside.

Investment Merits

1. Growth story. Growing organically and inorganically to gain market share and expand client base. SOG started with only Obstetrics and Gynaecology (O&G) services in 2011, expanding from a team of two O&G specialists to five. It has subsequently added three cancer specialists (two in 2014 and one in 2016) and one skin specialist (in 2015) to its team. SOG has expanded from two clinics to 10 clinics in 6 locations. In Jul-16, it will add another clinic into its portfolio, totalling to 10 specialists operating from 11 clinics in 7 locations.
2. Diversification empowering its resiliency and less O&G-reliant. Successful integration enables realisation of synergies and unlocking of value. SOG targets to add children healthcare services (Paediatrics) into its portfolio by 2017.
3. Long term proposition in becoming a comprehensive female medicine and whole life provider, which could lock-in its female patient base for the duration of their lifespan.
4. Increasing market share with supportive government initiatives and favourable macro backdrop.
5. Experienced team of specialist medical practitioners. Most of its physicians have long and established track record of at least 10 years in their respective field.
6. Conveniently-located clinics with most of its medical clinics located within major hospitals and are easily accessible by public transport.
7. Strong financial position and clean balance sheet. Zero-debt with net cash position of S$24.2mn (vs. market capitalisation of S$191mn) as at 31 Dec-15.

Investment Risks

1. Domestic and regional competition.
2. Lease renewal and unable to obtain a suitable location.
3. Manpower risk. Key personnel risks, as the Group was highly dependent on three of its specialist medical practitioners; and challenges to retain and expand its talent pool.
4. Potential dilution in shareholders’ equity and shareholdings if the Group issues new shares to finance its acquisitions. Also, future sale post moratorium or issuance of a large number of shares may have a downward pressure on share price.
5. Other risks: execution risks; single country risk; change of regulations and licensing requirements; liquidity risk as SOG is Catalist-listed; competition laws and regulations could limit growth; and occurrences of epidemics and pandemics may lower demand.

Investment Actions

• We think the stock has further upsides stemming from its 
  1. expansion plan backed by strong financials and clean balance sheet, and 
  2. growing customer base underpinned by favourable macro environment and experienced specialist team.
• We initiate coverage on SOG with a “Buy” rating with a target price of S$1.00 based on estimated 3.55 cents FY16 EPS and 28.2x FY16F PER. This implies an upside of 25.4% (with dividends) from its last closing price.

Soh Lin Sin Phillip Securities | http://www.poems.com.sg/ 2016-06-17

Phillip Securities SGX Stock Analyst Report BUY Initiate BUY 1.00 Same 1.00