Singapore Medical Group (SMG SP) - UOB Kay Hian 2018-03-01: 4Q17 Results In Line; Looking To 2018

Singapore Medical Group (SMG SP) - UOB Kay Hian 2018-03-01: 4Q17 Results In Line; Looking To 2018 SINGAPORE MEDICAL GROUP LTD 5OT.SI

Singapore Medical Group (SMG SP) - 4Q17 Results In Line; Looking To 2018

  • Singapore Medical Group (SMG)’s 4Q17 results are in line with our estimates. Net profit rose 250.8% y-o-y in FY17 due to earnings-accretive acquisitions made during the year which added other disciplines to the SMG specialist verticals. 
  • 2018 is likely to be a similar story where SMG enters into JVs and makes acquisitions to bolster its position as the go-to regional premium healthcare specialist. 
  • Maintain BUY with a PE-based target price of S$0.83.



RESULTS


4Q17 results in line. 

  • Singapore Medical Group (SMG) reported a 63.5% y-o-y increase in sales for 2017. The health business segment’s revenue rose by S$20.6m due to contribution from the acquisitions of Astra Companies, the Kids Clinics, and Babies and Children Specialist Clinic (BCSC). The diagnostics and aesthetics business segment’s revenue rose by S$5.8m due to the acquisition of Lifescan Imaging Pte Ltd where SMG acquired the remaining 61.9% of interest it did not own before. 
  • The group continues to enjoy synergy from its acquisitions which can be seen from the improvements in its gross profit margins which rose to a record 43% in FY17 from 36% in FY16.

Demand for private healthcare remains strong. 

  • In its quest to become the best in class regional private healthcare specialist, SMG made several strategic acquisitions during 2017 to add different medical specialties to the group. The group continues to make headway into Vietnam with the addition of new doctors through its JV with CityClinic Asia Investments Pte Ltd. 
  • In Singapore, SMG has opened a new 5,500 sf centre at Novena Medical Centre which has been fully operational since Feb 18. The centre offers a comprehensive range of cross-disciplinary radiology services. SMG has also opened another diagnostics centre at OUE Downtown Gallery to cater to customers that demand convenient access to imaging services in the central business district.


STOCK IMPACT


Executing well. 

  • 2017 has been a breakout year for SMG as it has been able to attract a mix of experienced and new doctors to join its key obstetrics and gynaecology (O&G) and paediatrics verticals. 
  • We expect 2018 to be the year where its partnership with major shareholder CHC starts to bear fruit as they embark on bringing the newly-acquired IVF capabilities throughout the Asia-Pacific region with Vietnam being a natural target for progression as SMG already has a presence there. 
  • Furthermore, given the clear profit targets specified in some of the acquisitions such as Astra Women Specialists, Children’s Clinic Central Pte Ltd, Babies and Children Specialist Clinic Pte Ltd, this should give investors some visibility in earnings for 2018.


EARNINGS REVISION/RISK

  • We make no changes to our 2018-19 earnings estimates and introduce our estimates for 2020.


VALUATION/RECOMMENDATION

  • Maintain BUY with PE-based target price of S$0.83 as we peg to peers’ average 2018F PE ratio of 26.8x.


SHARE PRICE CATALYST

  • Earnings-accretive M&A.
  • Stronger traction in high-growth markets such as Vietnam.




Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2018-03-01
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.830 Same 0.830



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