Singapore Medical Group (SMG SP) - Maybank Kim Eng 2017-08-16: Just What The Doctor Ordered

Singapore Medical Group (SMG SP) - Maybank Kim Eng 2017-08-16: Just What The Doctor Ordered SINGAPORE MEDICAL GROUP LTD 5OT.SI

Singapore Medical Group (SMG SP) - Just What The Doctor Ordered

Strong lift from acquisition and organic growth 

  • Singapore Medical Group (SMG)'s 1H17 earnings were in line, at 42% of our FY17E. Core EPS grew c.350% YoY, from a major acquisition and organic growth. 
  • Expect better 2H from:
    1. full 2H contributions from two major acquisitions completed in 2017;
    2. better organic growth from hiring two new specialists and a new diagnostic centre; and
    3. seasonally stronger 2H. 
  • SMG aims to drive growth by hiring more specialists, better overseas operations and more acquisitions. 
  • Maintain BUY and TP of SGD0.78, based on 27x FY18E EPS (average of 2-year forward mean of small-cap healthcare peers in Singapore).

Adding new specialists and a diagnostics centre 

  • To expand its obstetrics and gynaecology (O&G) segment, SMG hired two new specialists in May and Aug 2017, and they are expected to contribute around SGD0.3m in earnings pa. each. It currently has 10 O&G specialists and expects to reach 16 in the next three years. 
  • In addition, it is preparing a new 5.5k sf. diagnostics centre at Novena Medical Centre to expand its existing operations. 
  • Capex is estimated to be SGD3m and this could more than double the revenue of the existing centre.

Positive on overseas operations 

  • SMG’s Indonesia operations started to turn around in Jan-17, after more than a year of gestation period, since it entered the market in Oct-15.
  • SMG is also growing its two 15k sf. clinics in Vietnam. It has hired a paediatric leader to drive growth; in just four months, it has added five paediatricians and 4.5k patients. 
  • For its JV in Vietnam, it has the option to raise its stake by 15% by Feb-18, from 22% currently. SMG aims to further expand in both these markets but will limit investments to around SGD1m.

Exploring more acquisitions at attractive multiples 

  • SMG continues to seek more synergistic and EPS-accretive acquisitions in segments where it has less exposure to. Due to its improved profile and track record, more targets are knocking on its door and asking valuations have fallen to a more attractive level.

Swing Factors


  • 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.


  • Failure to integrate 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/ 2017-08-16
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.780 Same 0.780