HC Surgical Specialists - UOB Kay Hian 2018-12-11: In Search Of Cure & Comfort

HC SURGICAL SPECIALISTSLIMITED (SGX:1B1)

HC Surgical Specialists - In Search Of Cure & Comfort

The HC Surgical Specialists (HCSS) medical services group is primarily engaged in the provision of endoscopic procedures, including gastroscopies and colonoscopies, and general surgery services with a focus on colorectal procedures across a network of clinics located throughout Singapore.
The listing of associate - Medinex (SGX:OTX) also provides a good platform to expand HCSS services and to monetise its assets.

HC Surgical Specialists (HCSS, SGX:1B1) has set up 9 endoscopy centres, with 5 located in the heartlands, strategically located to provide healthcare services to local and foreign patients. To reach out to more patients, the group also has a number of general practitioners (GP) to extend its presence and provide a conducive platform of patient referrals for its specialists.

HC Surgical Specialists (HCSS)’s primary business tackles one of the top conditions amongst patients, with colorectal cancer ranked as the no.1 and no.2 forms of cancer among men and women respectively, according to the Singapore Cancer Society.

HC Surgical Specialists (HCSS) would also crystallise the value of its associate Medinex (SGX:OTX), which is a medical support services provider, specialising in providing professional support services to clinics. The associate’s business includes Medical Support Services (eg. consultancy for clinic set-up), Pharmaceutical Services (eg. Product procurement) and Business Support Services (eg. Accounting and corporate services).
Riding on the increasing healthcare needs of an ageing population and corresponding demand for medical practitioners, the associate could ....

HC Surgical Specialists (HCSS) has developed its strategy of identifying young specialists at an early stage, acquiring a majority stake and providing them with a platform for growth. Not only reducing the initial investment risk, this also provides HCSS with the growth potential as these younger specialists ramp up their operations.
With an eye for value, the group also has the option to acquire the remaining stake in such businesses at a reasonable price. HCSS has added three specialists in FY17 and one specialist in FY18.

With consistent earnings, HC Surgical Specialists (HCSS) also has pledged to pay out at least 70% of its earnings for FY19. This is supported by its strong recurring cashflow business model, as well as a net cash balance.
HC Surgical Specialists (HCSS)’s founders have also had aligning interest, occupying about 70% of ownership.

According to Bloomberg, the group is trading at 20.6x 2018 PE. In addition, HC Surgical Specialists (HCSS) has a stake of 26.7% in the current market capitalisation of its listed associate Medinex (SGX:OTX).

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-12-11

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