Singapore Medical Group - RHB Invest 2017-01-03: Consolidating The Singapore Specialist Arena

Singapore Medical Group - RHB Invest 2017-01-03: Consolidating The Singapore Specialist Arena SINGAPORE MEDICAL GROUP LTD 5OT.SI

Singapore Medical Group - Consolidating The Singapore Specialist Arena

  • With its recent acquisition of Astra Women’s Specialists group that would bump up its NPAT by SGD4.6m pa over five years, we expect Singapore Medical Group (SMG) to continue its acquisition spree while it consolidates the specialist medical private fields in Singapore. 
  • We assume any future acquisitions in existing fields or new areas to be completed at prudent valuations. 
  • In addition, with its 20-30% organic growth rate, partially boosted by its synergies from its earlier acquisitions, we believe SMG could continue its strong NPAT growth for the next 2-3 years. 
  • Maintain BUY.

Accretive and synergistic acquisition. 

  • The Astra Women’s Specialists Group is comprised of six obstetrics and gynaecology (OB/GYN) clinics and five reputable doctors. This accretive acquisition includes a 5-year profit guarantee and 6-year service agreements. The 5-year profit guarantee includes a minimum of SGD4.6m pa, which should boost Singapore Medical Group’s (SMG) bottomline significantly. 
  • In addition, along with a flagship clinic at Mt Elizabeth Novena Specialist Centre and other branches located conveniently in prominent locations, it could provide additional scale to SMG.

Ability to cross-sell other medical services. 

  • The previous acquisition which gave rise to a new business segment (diagnostic business) has a strong cross-selling ability with other medical services, complementing one another. 
  • Going forward, we expect new acquisitions – coupled with the increase in computed tomography/magnetic resonance imaging (CT/MRI) machines – to increase its current capacity of 75-80%. We forecast this segment to reach a growth of 20-30% pa over the next few years.

New diagnostics business with tremendous potential. 

  • Management has seen great potential in the imaging diagnostic business segment and has since made a few acquisitions. Currently, the group has three diagnostic centres in Paragon and Novena, covering over 9,000 sq ft in a one-stop centre.
  • We believe that the group would likely continue to invest more on this segment, with new potential acquisitions and the additions of CT/MRI machines, to increase its current capacity.

Potential M&As ahead. 

  • With the first major acquisition announced, we believe this is just the beginning of an expansion phase. Therefore, we expect SMG to continue to acquire private clinics either in existing medical fields or expand to new medial areas. 
  • With its prudent management team, SMG is likely to only consider purchasing businesses that exhibit multiples below 15x P/E, unless there are special circumstances that can be justified.

Maintain BUY with a DCF-derived TP of SGD0.63. 

  • With a turnaround now further validated by inorganic growth, we maintain our BUY recommendation on SMG.
  • Key risks include execution risks and the inability to raise capital to fund the acquisition.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-03
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.630 Same 0.630