ISEC Healthcare (ISEC SP) - Maybank Kim Eng 2017-07-12: Operations On Track And Exploring More M&A

ISEC Healthcare (ISEC SP) - Maybank Kim Eng 2017-07-12: Operations On Track And Exploring More M&A ISEC HEALTHCARE LTD. 40T.SI

ISEC Healthcare (ISEC SP) - Operations On Track And Exploring More M&A

Expect healthy growth 

  • We visited ISEC for an update. Three key takeaways: 
    1. expect healthy EPS growth for FY17E, driven mainly by contributions from acquisition of JL Medical clinics in Dec 2016. JL’s operations remain sound after the acquisition and it is on track to achieve its profit guarantee of c.SGD1.1m. 
    2. The ophthalmology operations in Malaysia continue to improve from higher patient volume, it has also added an eye centre in Mar 2017. 
    3. ISEC continues to explore more M&A opportunities. 
  • Maintain BUY and Target Price of SGD0.40, based on 23x FY18E EPS, pegged to the longterm forward P/E mean of ISEC.

Operations of newly acquired JL clinics remain firm 

  • JL Medical clinics continue to perform well after the acquisition in Dec 2016 and are on track to deliver their profit guarantee for FY17. Also, it is planning to add another new clinic and provide aesthetic treatments in more clinics. 
  • To recap, ISEC acquired a chain of four medical clinics in Dec 2016, which provide general medical and aesthetic treatments in the heartland areas of Singapore.

Positive on core ophthalmology operations 

  • ISEC’s operations in Malaysia should continue to record good performance due to increased patient volume. It has also added two ophthalmologists at a new eye clinic in Sarawak that started in Mar 2017. 
  • For Singapore, it plans to hire 1-2 ophthalmologists for its existing Gleneagles eye centre. This should minimise start-up costs, including rental, depreciation and staff expenses.

Exploring new markets and M&A opportunities 

  • Leveraging its established operations in Malaysia and Singapore, ISEC is exploring more expansion opportunities in several markets with a large population and rising demand for private ophthalmology services, including Vietnam, China, India, Indonesia, Myanmar, the Philippines and Taiwan. 
  • In addition, ISEC is in active discussions with other ophthalmology groups in Malaysia and Singapore.

Valuation basis 

  • Our TP of SGD0.40 is based on 23x FY18E EPS, the long-term forward P/E mean of ISEC, but a slight discount to the simple average of 2-yr forward P/E mean of small-cap healthcare peers in Singapore of 27x. 
  • We believe this is justifiable given its shorter track record and lower growth profile, which offers a 3-yr CAGR of 12% from 2016-2019E.

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/ 2017-07-12
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.400 Same 0.400