Singapore O&G - DBS Research 2016-07-04: Embracing women's needs

Singapore O&G - DBS Research 2016-07-04: Embracing women's needs SINGAPORE O&G LTD 41X.SI 

Singapore O&G - Embracing women’s needs

  • Gaining market share in O&G
  • Diversifying into higher margin, complementary services
  • High dividend payout
  • Initiating coverage with BUY and S$1.05 TP.

Growing market share in O&G, strong growth profile; Initiate with BUY, TP: S$1.05 for 27% upside. 

  • We initiate coverage on Singapore O&G (SOG). We are projecting 3-year earnings CAGR of 29%, driven by recent acquisitions coupled with market share growth with new recruitment of doctors. 
  • SOG has grown its market share in obstetrician and gynaecology (O&G) to 6.7% in 2015 from 4.3% in 2012, mainly led by recruitment of new doctors. With a still low market share, there is still room to grow. 
  • In addition, the latent period of SOG’s new doctors are typically shorter (less than a year), benefitting from spill-over referrals from its existing well-established team of doctors.

Diversifying into higher-margin complementary services. 

  • SOG has the potential to grow its women’s cancer-related, and newly acquired dermatology and aesthetics businesses by leveraging on referrals from its existing bread-and-butter O&G business. 
  • SOG aims to achieve equal revenue contributions from its four key segments in the medium term. In line with its goal to be an integrated women’s health medical practice, we believe other complementary services to explore includes paediatrics, in-vitro fertilization (IVF) and child care.

High dividend payout. 

  • SOG has a high dividend policy of 90% payout to align the interests of its medical practitioners (who together own a 78% stake), which represents dividend yields of 4- 5%.

BUY, S$1.05 TP. 

  • Our TP S$1.05 is based on the average derived from PE multiple (pegged to peers’ 26x) and DCF valuation methods, offering potential 27% upside. 
  • SOG currently trades at 21x FY17F PE, close to the higher end of historical range but looks like a steal compared to other healthcare peers. 
  • Key potential catalysts are 
    1. new recruitments and ability to retain doctors; and 
    2. successful acquisitions of new medical practices.

Rachel TAN DBS Vickers | Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-04
DBS Vickers SGX Stock Analyst Report BUY Initiate BUY 1.05 Same 1.05