SINGAPORE O&G LTD.
41X.SI
Singapore O&G Ltd - Stellar results not mere aesthetical
- 1H16 Revenue/PATMI met 51%/61% of our FY16 estimates.
- Positive earnings surprise from margin improvement, as well as better than expected turnover from both the Cancer-related and the newly acquired Dermatology and Aesthetic segments.
- Higher dividend on strong earnings; declared an interim tax exempt dividend of 1.53 Singapore cents per share (+73.9% yoy).
Lower gross margin due to change in business mix.
- Gross margin was down 4.1 percentage point (pp) to 85.4% in 1H16, in line with the higher turnover from Cancer-related segment and the addition of Dermatology business.
- The SOG Dermatology Clinic and Cancer-related businesses generally require more consumables and medical supplies than that of O&G specialty.
Core segment of O&G gained market share.
- The Group had a 6.9% yoy increase in total delivery in 1H16, vis-a-vis -0.6% yoy for Singapore. Its Obstetrics and Gynaecology (O&G)’s market share increased from 3.9% of total Singapore live births in FY15 to 4.0% in 1H16.
- We expect the growth momentum to extend into 2H16, in view of
- birth rate is usually higher in the second half of a year,
- improvement from Dr. Choo Wan Ling, who has moved her clinic from Gleneagles Hospital to a more favourable venue in Mount Elizabeth Novena Hospital, and
- support from the new Obstetrician, Dr. Hong Sze Ching, who joined in July 2016.
Dermatology business, a profitable acquisition.
- The new segment contributed S$4.3mn and S$1.5mn to the Group’s revenue and net profit, respectively. This indicates that it is already more than half way to its target net profit of S$2.3mn (the terms and conditions stated during the acquisition deal). Management shared that it has started marketing the products and services offered by its Dermatology specialty in its SOG clinics.
- Sale of Dr. Joyce Lim’s proprietary products accounts for c.50% of the revenue from Dermatology business. We expect higher contribution from its Dermatology business with increased awareness and the access points for products purchasing.
Cancer-related segment is still a drag on the bottom line.
- Dr. Cindy Pang has been gaining traction, offsetting the latent period of the new Breast Specialist, Dr. Lim Siew Kuan.
- Meanwhile, Dr. Radhika is still breaking even. Management shared that it is adjusting its marketing strategy to increase productivity.
However, net margin was up 2.1 pp to 37.1% in 1H16 on better cost management.
- Net margin was lifted by
- marginal price increase in its Obstetrics services, and
- effective staff management.
- Management shared that the price adjustment in its Obstetrics services was to match the pricing of its competitors in the same vicinity, and is not expecting for further adjustment soon.
- On the other hand, despite having an additional Dermatology business, it managed to maintain its headcount by re-deploying management staff. The move also helps to smoothen integration of the new business.
Investment Actions
- We adjusted our assumptions in view of the better-than expected performance from all segments and margin improvement. This translates to a c.28% increase in FY16F EPS at 4.55 Singapore cents as compared to our previous forecast.
- We think the stock has further upside stemming from its
- expansion plan backed by strong financials and clean balance sheet, and
- growing customer base underpinned by favourable macro environment and experienced specialist team.
- We downgrade to “Accumulate” rating on the recent run up in price; but upgraded TP to S$1.37 (previous S$1.00) based on higher FY16F EPS and forward PER.
Soh Lin Sin
Phillip Securities
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http://www.poems.com.sg/
2016-08-12
Phillip Securities
SGX Stock
Analyst Report
1.37
Up
1.000
