Singapore Medical Group - RHB Invest 2017-10-19: Two Pronged Approach – Acquisitions And Hiring

Singapore Medical Group - RHB Invest 2017-10-19: Two Pronged Approach – Acquisitions And Hiring SINGAPORE MEDICAL GROUP LTD 5OT.SI

Singapore Medical Group - Two Pronged Approach – Acquisitions And Hiring

  • Singapore Medical Group (SMG) has announced the proposed acquisition of a hospital-based paediatric clinic for SGD7.9m, representing a P/E of 7.6x which is accretive to EPS. They have also hired another four specialists to further fuel their growth. This move would likely strengthen its paediatrics department, which is an area that SMG wants to expand. 
  • Management is still looking for more acquisitions to fuel growth, albeit smaller-sized ones. 
  • We also revise our FY18F NPAT by +3%. Maintain BUY with an unchanged DCF-backed TP of SGD0.79 (25% upside).

Boosting its paediatrics arm. 

  • Previously, Singapore Medical Group (SMG) management shared that it is keen to scale up the paediatrics segment. This latest proposal (on the heels of its recently acquired paediatric clinics in Toa Payoh and Bishan), makes it not only one of the largest practitioners in the private sector dedicated towards women’s health and wellness, but now, with a focus on children. This latest move brings on board a subspecialty focus on neonatology, targeting newborn infants, particularly the ill or premature. 
  • SMG will also have a consultancy agreement of at least five years with the clinic’s renowned senior neonatologist. Efforts would be committed to grow SMG’s paediatric practice, identify and mentor talented paediatricians. This also expands the group’s portfolio of clinics to 36.

Similar deal structure as previous acquisitions. 

  • This acquisition structure is similar to the previous ones, with 50% cash as well as 50% shares – 6.34m new shares at an issue price of SGD0.62/share. The SGD3.95m in cash is to be paid over three tranches ranging over to 2019.

Organic hiring of four specialists. 

  • Despite this inorganic growth, management is also focused on its organic growth, having hired another four specialists in the disciplines of paediatrics, obstetrics & gynaecology and cardiology. They are targeted to join the group by 1Q18.

Looking into other medical streams. 

  • Management is keen to expand into new medical segments like cardiology, dental paediatrics and further expand into aesthetics. However, it is likely to be making smaller acquisitions than before, targeting single-digit multiple acquisitions.

Maintain BUY with an unchanged DCF-derived SGD0.79 TP. 

  • With a turnaround now further validated by both organic and inorganic growth, we maintain our BUY recommendation on SMG. 
  • We also expect it to make more accretive – but smaller-sized – acquisitions in the near term, thereby hastening its growth. It would also be hiring more doctors, while at the same time optimising processes to improve its utilisation. 
  • We expect a stronger 2H17, mainly due to a seasonally stronger 2H, as well as the full earnings accretion from its Astra Women's Specialist group of clinics and paediatric acquisitions. For this acquisition, we have raised our FY18F NPAT by +3%. 
  • The main risk to our forecasts would be a decline in foreign medical tourist arrivals.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-10-19
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.790 Same 0.790