Singapore Medical Group (SMG SP) - Maybank Kim Eng 2017-04-04: Exciting growth plans

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SINGAPORE MEDICAL GROUP LTD 5OT.SI

Singapore Medical Group (SMG SP) - Exciting growth plans

Expansion and strategic partner to drive growth 

• We visited SMG recently for a company update. Key growth drivers include: 
  1. organic expansion and increased marketing efforts; 
  2. healthy M&A pipelines; and 
  3. synergies and potential collaboration with CHA Healthcare (private), its new strategic shareholder. 
• SMG’s recent successes include an earnings turnaround and major acquisition; securing a good strategic shareholder should help its expansion and attract more quality doctors. 
• Share price correction of c.8% from the 52wk high was due to the absence of positive news presents a good buying opportunity.
• Maintain BUY with TP of SGD0.67, based on 27x FY18E EPS (average 2-yr forward mean of small-cap healthcare peers in Singapore).

Organic expansion and increased marketing effort 

• Organic expansion will help to expand more established specialties, especially the O&G segment where SMG already has 8 specialists. It targets to double the no. of specialists to 16 over the next 3 years. 
• For the health screening segment, SMG has 4 radiologists and is considering adding more equipment. 
• In addition, SMG has increased its marketing efforts, especially using social media and to promote and bundle healthcare services targeting women, including: women’s health, health screening, dental, ophthalmology and aesthetics.

Healthy M&A pipeline 

• SMG has identified several M&A targets and it is in constant discussion with various specialist groups. As it strengthen its brand name and track record, more senior specialist groups are increasingly interested in joining SMG and appear willing to provide more favourable terms. 
• SMG aims to acquire specialists who could scale up easily and offer crossselling opportunities. Key specialties identified include the women’s health and dental segments.

Good synergies & opportunities from CHA Healthcare 

• Recent capital injection from CHA Healthcare has helped SMG secure valuable strategic shareholders. It will benefit from: 
  1. CHA’s established expertise in the healthcare segment; and 
  2. leveraging on CHA’s brand name to tap on the underserved Korean communities in Singapore (c.20k Korean) and Vietnam (c.130k Korean).

Swing Factors

Upside

• Increasing discovery could re-rate the stock. A longer term scenario incorporating 33x industry leader’s P/E in FY19E EPS suggests 61% upside to a TP of SGD0.95.
• More M&A: we have not factored in any future acquisitions. Every SGD1m profit acquisition could raise FY7E EPS and TP by at least 7%.
• Faster-than-expected earnings growth from existing businesses and newly-acquired entities.

Downside

• Failure in integrating M&A targets. Acquisition of women’s health group is SMG’s largest acquisition and integrating the business might require more resources.
• Failure to maintain profitability for recently turned around businesses, as SMG might overspend on expansions.
• Competition from other integrated and specialised players. They could take away SMG’s patients and specialist doctors.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-04-04

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.670 Same 0.670