Singapore Medical Group - RHB Invest 2017-01-10: Expanding Into Vietnam’s Private Healthcare Market

SINGAPORE MEDICAL GROUP LTD 5OT.SI

Singapore Medical Group - Expanding Into Vietnam’s Private Healthcare Market

Singapore Medical Group (SMG), through its 50% owned JV entity SMGIV entered Vietnam’s private healthcare market via a 32%, USD1.6m investment stake in CityClinic Asia (CCAI). This is in-line with its regional expansion strategy for Asia.
CCAI reported losses of USD0.4m in FY15, mainly due to initial start-up costs. We do not expect SMG’s FY17F earnings to be materially impacted by this acquisition.

We believe SMG’s entry into Vietnam is prudent, similar to what it did when it first entered into the imaging diagnostic business.
Maintain BUY with DCF-based TP of SGD0.63 (40% upside).

Careplus Clinic Vietnam, fully owned by CityClinic Vietnam Limited (CCVN), is a 15,000 sq ft clinic focused on health screening, women’s health, paediatrics and diagnostic imaging for corporate and residential clientele in Tan Binh district of Ho Chi Minh City. It has a network of over 50 doctors across 11 disciplines.

SMGIV would provide training to CCVN in areas such as marketing while arranging specialist seminars in Ho Chi Minh City on a quarterly basis.
Senior management from SMGIV would also conduct monthly visits to Ho Chi Minh City as the Group continues to expand and diversify its business operations into the Vietnamese market. This should extend the Group’s medical expertise in areas such as oncology and women’s health to an existing infrastructure in Vietnam, allowing the Group to reap cross border synergies in Ho Chi Minh City’s rapidly growing private healthcare landscape.

SMGIV would be entitled to another 15% bonus stake in CCAI if certain KPIs and actions are met one year after the completion of the First Tranche subscription. These KPIs include providing management input with weekly review calls, ensuring that its senior management conducts monthly visits to Ho Chi Minh City and provide training on matters such as marketing on a quarterly basis etc.

We believe this is just the beginning of SMG’s expansion plans, despite the announcement of its first major acquisition of Astra Women Group.
We expect SMG to continue to acquire private clinics either in existing medical fields or expand to new medical areas. With its prudent management team, we expect SMG to likely consider purchasing businesses that are valued below 15x P/E, unless special circumstances can be justified.

We believe that its foray into Vietnam is in line with SMG’s regional expansion strategy and would be beneficial in the longer run.
With a turnaround now further validated by both organic and inorganic growth, we maintain our BUY recommendation on SMG with our DCF-based TP of SGD0.63 implying a 27x FY17F P/E.
Key risks include execution risks and the inability to raise capital to fund its acquisitions.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-10

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.630 Same 0.630