ISEC Healthcare (ISEC SP) - Maybank Kim Eng 2017-06-05: Niche Ophthalmology Player

ISEC Healthcare (ISEC SP) - Maybank Kim Eng 2017-06-05: Niche Ophthalmology Player ISEC HEALTHCARE LTD. 40T.SI

ISEC Healthcare (ISEC SP) - Niche Ophthalmology Player

Niche specialist with strong foothold in Malaysia 

  • ISEC provides exposure to the niche ophthalmology healthcare services, which is set to tap into the positive trends of: 
    1. a rapidly ageing population which has led to eye disorders, such as cataracts; 
    2. better educated patients who seek early treatment; and 
    3. underserved market in Malaysia where there is only 1 ophthalmologist per 100k population vs 4 in Singapore and 5-11 in developed countries. 
  • Currently ISEC has 18 ophthalmologists, 3 eye care centres in Malaysia and 1 centre in Singapore. 
  • Maintain BUY with slightly lower TP of SGD0.40.

Exploring more opportunities abroad 

  • Leveraging from its stronghold in Malaysia, ISEC is exploring more expansion opportunities in several markets with large population and rising demand for private ophthalmology services, including Vietnam, China, India, Indonesia, Myanmar, the Philippines and Taiwan.

Key risks: key man risk, integration & forex 

  1. Dr Lee Hung Ming, the largest shareholder (33% stake) remains the largest earnings contributor at c.15% of the group’s earnings in 2016; 
  2. ISEC completed two notable acquisitions that are worth more than SGD10m in 2015 and 2016, and a failure to integrate these businesses could drag earnings; and 
  3. ISEC derived 84% of its total earnings from Malaysia in 2016, and significant MYR weakness against SGD could lead to translation losses.

Valuation basis 

  • Our TP of SGD0.40 is based on 23x FY18E EPS, pegged to the long term forward P/E mean of ISEC, which is a slight discount to the simple average 2-yr forward P/E mean of small-cap healthcare peers in Singapore of 27x. 
  • We believe this is justified given its shorter track record and lower growth profile, which offers a 3-yr CAGR of 12% from 2016-2019E. Note that we have not included any contributions from potential M&As.

Swing Factors


  • Closure of immediately-accretive M&A deals in regional markets, such as Taiwan, Indonesia, Vietnam and Cambodia in 1H16.
  • Sustained recovery of MYR.
  • Lower operating costs after closure of Mount Elizabeth Novena clinic.


  • MYR weakness against SGD beyond our 2017 assumption of 3.15.
  • Failure to integrate newly acquired entities.
  • Regulatory restriction on pricing and M&As.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-06-05
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.40 Down 0.420