Singapore Medical Group - RHB Invest 2018-08-15: Strong Growth As M&A Contribution Kicks In

SINGAPORE MEDICAL GROUP LTD SGX:5OT

Singapore Medical Group - Strong Growth As M&a Contribution Kicks In

Maintain BUY and DCF-backed SGD0.56 Target Price, 30% upside.
Singapore Medical Group delivered a strong 2Q18, with topline raising 29.9% y-o-y to SGD21.6m and PATMI surging 32% y-o-y to SGD3.4m. This was driven by organic growth and M&A contribution from 2017. GPM improved to 44.8% on a larger portion of higher-margin medical streams.
Going forward, management intends to hire additional specialists and open new clinics, with a dental clinic in Bishan as the first. It is also in an advanced stage to scale its SW1 aesthetic platform overseas.

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Singapore Medical Group’s GPM improved to 44.8% on larger contributions from higher-margin medical streams. Revenue and PATMI both surged 29.9% and 32% y-o-y, with organic growth still strong despite an estimated drop in medical tourism numbers. As a result, we believe the group is doing the right things to capture market share in the private medical practice space from its competitors.

Following the acquisition of SW1 Clinic – run by the ex-founders of The Sloane Clinic – Singapore Medical Group is also at an advanced stage of its plans to scale its aesthetics platform out into the region.
Vietnam and Indonesia have been identified as natural progression destinations due to the group’s existing footprints in both countries. Singapore Medical is likely to open the Vietnam branch soon, with two aestheticians already hired and a third in the midst of being taken on.

Moving forward, management intends to hire 6-8 additional specialists and open new clinics to further boost organic growth – with a dental clinic in Bishan first to be slated.
Singapore Medical Group is also opening a new paediatrics clinic in Northern Singapore to strengthen its hub & spoke model, which extends into the heartland.
Lastly, the group is also hiring more radiologists in 3Q18 to cope with increasing demand.

In Vietnam, Singapore Medical Group’s growth initiatives are still being implemented, and the group is likely to increase its stake in the JV once the entity is profitable. Its JV in Indonesia continues to show good growth and profitability.

With strong organic growth on track, coupled with plans to further boost growth locally and overseas, Singapore Medical Group is on track to deliver a strong PATMI growth of 40.4% y-o-y in FY18, which is rare among Singapore-listed healthcare players. As a result, we maintain our recommendation and DCF- backed Target Price on this counter.
Key risks to our call include a slowdown in medical tourism and doctors leaving the group once their lock-in periods are over.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-08-15

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