Singapore Medical Group - RHB Invest 2018-05-15: Good Start To 2018

SINGAPORE MEDICAL GROUP LTD SGX: 5OT

Singapore Medical Group - Good Start To 2018

With acquisition earnings kicking in, Singapore Medical Group (SMG) reported a solid 1Q18, with topline growing 37% y-o-y to SGD19.23m, and PATMI surging 138.9% to SGD3.41m.
The strong 1Q18 earnings did not include its 85% stake in SW1, an aesthetic and plastic surgery clinic that was acquired at the end of March.
We also understand that past acquisitions that were completed are still enjoying double-digit growth y-o-y. As a result, we are projecting better quarters ahead for the rest of 2018.

Maintain BUY with unchanged DCF-derived Target Price of SGD0.68, suggesting 33% upside.

Singapore Medical (SMG) reported a solid 1Q18. Topline grew by 37% y-o-y to SGD19.23m and PATMI surged 138.9% to SGD3.41m. Topline growth was largely driven by the healthcare segment, which grew 47.7% y-o-y to SGD14.3m. The diagnostic & aesthetics segment rose 14.2% y-o-y to SGD4.9m.
1Q18 earnings did not include its 85% equity stake in SW1, an aesthetic and plastic surgery clinic located in Paragon that was acquired at the end of March. According to management, SW1 is already profitable.
We also understand that past acquisitions that were completed are still enjoying double-digit growth y-o-y.

After its rights issue earlier this year, SMG has replenished its war chest for more acquisitions. However, management revealed that the group will likely pursue smaller sized acquisitions in the range of SGD5-10m going forward, and would not raise any more funds for the rest of the year.

Its Vietnam operations lost SGD800,000 last year but management is expecting the operations there to breakeven by the end of 2018.
Management is optimistic about growth in Australia, especially in the in vitro fertilisation (IVF) space, and is open to more acquisitions in the future.

With organic growth still strong at double-digit levels despite an estimated drop in medical tourism numbers, we believe SMG is doing the right things to capture market share in the private medical practice space from its competitors.
In addition, SW1, which is already profitable, is expected to contribute positively to the group’s bottomline from 2Q18. As a result, we are expecting better quarters ahead for SMG for the rest of 2018.
Maintain BUY with an unchanged Target Price of SGD0.68.
Key risks include a slowdown in medical tourism and doctors leaving the group after the lock-in period.

Jarick Seet RHB Invest | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-15

SGX Stock Analyst Report BUY Maintain BUY 0.680 Same 0.680