SINGAPORE MEDICAL GROUP LTD
5OT.SI
Singapore Medical Group - Accretive Acquisition Of OB/GYN Specialist Group
- SMG will acquire the Astra Women’s Specialist group for SGD60m (13x FY15 P/E). This will boost its OB/GYN team to eight and make it one of the largest practitioners in the private sector dedicated towards women’s health and wellness.
- There will also be a minimum profit guarantee of SGD4.6m pa over five year.
- We expect more acquisitions ahead, made at prudent valuations, in existing fields or new areas.
- After accounting for dilution, our DCF TP rises to SGD0.63 (34x FY17F P/E). Maintain BUY.
Potential M&As ahead.
- With the first major acquisition announced, we believe that this is just the beginning and SMG will continue to acquire private clinics, either in existing medical fields or even new medical areas.
- We believe that management will be prudent, and likely only pay below 15x P/E for any future acquisitions, unless there are special circumstances that can be justified.
Accretive and synergistic acquisition.
- The Astra Women’s Specialist group comprises six obstetrics and gynaecology (OB/GYN) clinics and five reputable doctors.
- Along with a flagship clinic at Mount Elizabeth Novena Specialist Centre and other branches located conveniently in prominent locations, the acquisition will add additional scale to Singapore Medical Group’s (SMG) OB/GYN unit. This will also make it one of the largest practitioners in the private sector dedicated towards women’s health and wellness.
Ability to cross-sell other medical services.
- This acquisition will be synergistic to the group, especially in terms of cross-selling other medical services to new clients. For example, the medical scans alone can be done using SMG’s own imaging diagnostics department.
5-year profit guarantee and 6-year service agreements.
- There will be a 5- year profit guarantee of a minimum of SGD4.6m pa, which should greatly boost SMG’s bottomline. The five doctors coming on board will also fulfil a 6-year service agreement as the group expands into areas such as general OB/GYN, fetal-maternal medicine, urogynaecology and in-vitro fertilisation.
SGD27m in shares and SGD33m in cash.
- The acquisition will be funded via the issuance of 81.1m new shares at SGD0.33/share. Payment of SGD33m in cash will be paid in three tranches by Jan 2018. We estimate that the group will have to issue approximately 151m new shares to fund this acquisition.
Maintain BUY with a higher DCF-backed TP of SGD0.63.
- Despite accounting for the potential dilution, our DCF-backed TP is raised to SGD0.63 (from SGD0.45, 73% upside), implying 34x FY17F P/E.
- With a turnaround now further validated by inorganic growth, coupled by further potential M&As, we maintain our BUY recommendation on SMG.
- Risks to our call include execution risks and the inability to raise capital to fund the acquisition.
- We raise our FY17F estimates by about 100% to account for the profits from this acquisition.
Jarick Seet
RHB Invest
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http://www.rhbinvest.com.sg/
2016-10-11
RHB Invest
SGX Stock
Analyst Report
0.63
Up
0.450
