Singapore Medical Group - RHB Invest 2017-04-24: Acquisition Spree Continues - Paediatric Clinics

SINGAPORE MEDICAL GROUP LTD 5OT.SI

Singapore Medical Group - Acquisition Spree Continues - Paediatric Clinics

SMG has announced the acquisition of two paediatric clinics in Toa Payoh and Bishan for SGD25.3m, with a profit guarantee of SGD2.3m pa implying a valuation of 11x P/E. This acquisition – to be funded by an issuance of 21m of new shares at SGD0.54/share and SGD13.9m cash –would be done in three tranches.
It also marks the group’s initial foray into paediatrics that would provide synergies and cross-selling opportunities to its O&G segment. As a result, our DCF-backed TP is raised to SGD0.79 (from SGD0.65, 27% upside) implying a 28x FY18F P/E.
Maintain BUY.

The acquisition marks the its initial foray into paediatrics, a highly complementary specialist vertical that would provide synergies and cross-selling opportunities to Singapore Medical Group’s (SMG) burgeoning Obstetrics & Gynaecology (O&G) segment.
Coupled with the group’s eight existing O&G doctors, the addition of two paediatricians would make it one of the largest specialist practitioners in the private sector dedicated towards women’s health and wellness, and now babies and children.

The acquisition of two paediatric clinics in Toa Payoh and Bishan comes with a minimum profit guarantee of SGD2.3m pa for the next five years. It would provide clear earnings visibility going forward while also implying a valuation of only 11x P/E, far below the valuation it is currently trading at. 0.29 Acquiring an additional 10% stake of its subsidiary – The Cancer Centre.
SMG has announced that it would be acquiring another 10% stake in its subsidiary, The Cancer Centre Pte Ltd for SGD2.92m via the issuance of 5.392m new shares at SGD0.5415/share, bringing its shareholding up to 90%. The Cancer Centre generated a FY16 NPAT of SGD2.92m, implying a 10x P/E valuation for this acquisition. We are positive on this additional stake as it would contribute positively to the group’s earnings.

SMG has made a string of acquisitions locally, in various medical streams like imaging diagnostics, O&G, as well as paediatrics in the past 12 months. It has also received an endorsement via a SGD15m strategic stake invested by CHA Healthcare, Korea’s leading O&G specialist, with plans to expand together into South-East Asia.
We remain convicted on SMG’s aim to be a leading pan-Asian healthcare provider, with its intent of solidifying the string of rapid acquisitions and partnerships.

With a turnaround now further validated by both organic and inorganic growth, we are still positive on its bright outlook. SMG remains as one of our Top 2 healthcare Picks in Singapore. As a result, we maintain our BUY recommendation with a lifted DCF-backed TP of SGD0.79, implying a 28x FY18F P/E to reflect the additional profits from this acquisitions.
Key risks are the execution risks on acquisitions and synergies.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-04-24

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.79 Up 0.650