Singapore Medical Group - RHB Invest 2018-03-02: A Record FY17F

SINGAPORE MEDICAL GROUP LTD 5OT.SI

Singapore Medical Group - A Record FY17F

Singapore Medical Group (SMG) reported a record FY17F. with PATMI surging 250.8% to SG8.5m while revenue rose 63.5% y-o-y. This was however short of consensus estimates but we understand it to be mainly due to one-off renovation costs for its offices as well as M&A transaction costs.
A rights issue of 1 share for every 20 existing shares has also been announced to further strengthen the balance sheet for future acquisitions.
As a result of the above dilution and lowering our FY18F PATMI by 10%, our DCF-derived Target Price drops to SGD0.68 (SGD0.79, 21% upside). Maintain BUY.

Singapore Medical Group (SMG) reported a record FY17F. with PATMI surging 250.8% to SGD8.5m while revenue rose 63.5% y-o-y.
Gross margins expanded to 42.6% from 35.8% a year ago. This was however short of consensus estimates but we understand it was mainly due to one-off renovation costs for its offices as well as some M&A transaction costs.

Management has decided to propose a renounceable non-underwritten rights issue of one right for every 20 existing shares at an issue price of SGD0.48/share, raising up to SGD10.8m, which further strengthens its balance sheet to support Singapore Medical Group ’s high growth trajectory, led by organic and inorganic initiatives.

Singapore Medical Group remains bullish on Vietnam. Management has hired a paediatrics leader to spearhead growth initiatives at its Careplus clinics in Vietnam. It has also implemented growth initiatives at the two 15,000 sq ft clinics and hopes to see profitability by end-FY18F.
Its eye clinic in Jakarta, which was loss making, is showing signs of growth and profitability.

Management is keen to expand into new medical segments like cardiology, dental paediatrics and further expand into aesthetics. Management is very keen on higher margin medical segments to further boost the group’s blended margins going forward.

With a turnaround now further validated by both organic and inorganic growth, we maintain our BUY recommendation on Singapore Medical Group. However, we lower our FY18F PATMI by 10% and with the dilution from the right issue, our DCF-derived Target Price lowers to SGD0.68, implying a 26x FY18F P/E.
We also expect it to also make more accretive but smaller sized acquisitions or JVs, especially in aesthetic segment in the near term, thereby hastening its growth. It would also be hiring more doctors while at the same time optimising processes as it goes along to improve its utilisation.
We expect a stronger FY18F, mainly due to the full earnings accretion from its Astra Women's Specialist group of clinics (Astra) and paediatric acquisitions.
Key risk is a drop in foreign medical tourism.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2018-03-02

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.68 Down 0.790