Singapore O&G Ltd (SOG SP) - Maybank Kim Eng 2017-09-12: Winning Over Women & Babies

Singapore O&G Ltd (SOG SP) - Maybank Kim Eng 2017-09-12: Winning Over Women & Babies SINGAPORE O&G LTD. 1D8.SI

Singapore O&G Ltd (SOG SP) - Winning Over Women & Babies

Growing share in the private birth delivery market 

  • Singapore O&G Ltd (SOG) is a healthcare group consisting of 10 medical specialists dedicated to women’s health and wellness. Founded in 2011, it has an established track record in the obstetrics and gynaecology (O&G) field in Singapore.
  • SOG’s data shows that it has been gaining market share in the O&G segment. As of 2016, it commanded a market share of 7.5% of the private birth delivery market, up from 6.7% in 2015 and 5.6% in 2014. 
  • Beyond its key O&G segment, which contributed 60% of the total revenue in FY16, it has expanded into three other complementary specialties, including dermatology, cancer-related segments and paediatric. 
  • SOG targets to achieve equal revenue distribution of 25% across the four segments.

Aims to grow the complementary segments 

  • Revenue contributions by segment in FY16: O&G (60%), dermatology (30%), and cancer-related (10%). 
  • Key growth initiatives:
    1. build up the new paediatric segment – a new specialist started in Jul 2017 and another specialist will join in Nov 2017;
    2. expand the dermatology segment by developing a team of specialists under Dr. Joyce Lim, the only skin specialist in SOG, and offering in-house skin care products; and 
    3. explore more recruitment opportunities for the other segments.

Expect recent earnings weakness to be temporary 

  • SOG’s earnings declined by 6% YoY in 1H17 due to weaker revenue growth of only 2% YoY, due mainly from weaker dermatology segment and higher expenses from two new specialists recruited in May and Jul 2016.
  • Management expects earnings to improve in 2H17 as the two new specialists have reached the breakeven stage and a specialist has returned from maternity leave, which took place for the entire 2Q17.



  • A group of specialist medical practitioners focusing on women’s health, and has an established track record in the Obstetrics and Gynaecology (O&G) field in Singapore.
  • Areas of specialisation are:
    1. pregnancy care and delivery;
    2. the female reproductive system;
    3. gynaecological and breast cancer; and
    4. skin and aesthetic treatments.
  • SOG has 10 specialist medical practitioners as of end- 2016, consisting of:
    1. 6 O&G specialists;
    2. 3 cancer specialists (1 gynae-oncologist and 2 breast and general surgeons); and
    3. 1 dermatologist.
  • 3 main business segments are O&G, Cancer-related and Dermatology.
  • Commands market share of 7.5% of private birth delivery market (2016), up from 6.7% in 2015.

Company milestones 

  • Founded in Jan 2011 and renamed as Singapore O&G Pte Ltd. in Aug 2011 to better reflect the nature of its businesses.
  • 2013 – Employed the first O&G specialist.
  • Feb 2014 – As part of restructuring, SOG engaged Dr. Lee Ken Whye, Dr. Heng Tung Lan, Dr. Beh Suan Tiong, Dr. Choo Wan Ling as O&G specialists. They are the largest shareholders and earnings contributors.
  • Sep & Oct 2014 – Ventured into cancer-related segments. Engaged Dr. Radhika Lakshmanan, a general surgeon with a special interest in breast cancer and Dr. Cindy Pang, O&G specialist with a special interest in gynaeoncology.
  • IPO in June 2015.
  • Acquired Dr. Joyce Lim’s specialised dermatology business in Dec 2015 for SGD 26.5m. She is a renowned skin specialist and is SOG’s first and largest acquisition to date.
  • Engaged Dr. Lim Siew Kuan (breast cancer specialist) and Dr Hong Sze Ching (sixth O&G specialist) in May and Jul 2016, respectively.



  • Established track record of co-founders, consisting of senior doctors with more than 20 years of experience.
  • SOG has an asset-light business model with low maintenance capex and fixed costs. It also enhances business scalability.


  • Smaller in scale in terms of profitability and market cap compared to peers, especially those with integrated operations. SOG might lack economies of scale vs these players.
  • Singapore-centric business could limit growth opportunities due to market saturation and live births.


  • Further organic growth from hiring of more young doctors who are seeking for an established platform.
  • Growing number of ageing and established doctors who are interested in selling their practices to institutionalise patient relationships.
  • Faster-than-expected breakeven of new specialists.


  • Competition from other integrated and specialised healthcare groups for talents and patients.
  • Decline in medical tourism could hurt the aesthetic segment as these patients contribute c.30% of revenue.
  • Accident or departure on two key earnings contributors, Dr. Heng Tung Lan and Dr. Joyce Lim.


  • Based on consensus estimates, SOG trades at 24x/20x FY17E/FY18E P/E. This is at a slight discount of 8%/20% vs Singapore peers’ PE of 26x/25x. Compared to regional peers’ P/E of 35x/29x, the discount is steeper at c.30%. 
  • In addition, SOG offers a respectable 4.0% dividend yield for FY17E, which is the second-highest among Singapore’s peers, which generate 0.5%-5.0% dividend yield. On the other hand, the regional peers offer a dividend yield of 1.5% for FY17E.

The growth proposition 

  • Based on consensus estimates for FY17E/FY18E, SOG’s EPS is expected to grow 3%/15%. EPS growth estimates for other specialised healthcare players:
    1. Q&M Dental (23%/9%);
    2. ISEC Healthcare (22%/9%);
    3. Singapore Medical Group (225%/34%);
    4. Talkmed (-6%/9%).
  • SOG targets to gain market share in the women and baby healthcare sector.
  • M&A related growth optionality from other senior doctors.

The value proposition 

  • SOG does not have a formal dividend policy but targets to pay up to 90% of earnings. Since IPO in 2015, it has achieved a payout ratio 76% for FY15 and 83% for FY16.
  • ROE has been on a declining trend since FY13 due to:
    1. recruitment of more young doctors;
    2. substantial goodwill arising from major acquisition made in end 2015; and
    3. increasing net cash balance.
  • SOG targets to grow medical specialities complementary to O&G and achieve equal revenue split of 25% across 4 divisions, including:
    1. cancer-related;
    2. dermatology; and
    3. paediatrics.


  • Decline in birth rate which could lead to lower patient load. Obstetrics contributed around 48% of group’s revenue in 2016 and a decline in birth rate will have a direct adverse impact on this revenue.
  • Competition from other integrated healthcare groups and specialised healthcare groups, particularly in recruiting talented doctors and attracting patients.
  • Major events that result in lower patients visitations, such as haze, Zika and bird flu.
  • Adverse regulatory changes, such as restrictions on doctors’ fees, practice requirements and greater compliance.
  • Significant dependency on two key earnings contributors, Dr. Heng Tung Lan and Dr. Joyce Lim.

Target Price: N/A

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-09-12
Maybank Kim Eng SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998