Singapore Medical Group - RHB Invest 2018-12-14: Focusing On Expanding Overseas Market


Singapore Medical Group - Focusing On Expanding Overseas Market

  • Maintain BUY, with an unchanged DCF-backed 0.56 Target Price, 36.6% upside and 1.4% FY19F yield.
  • Singapore Medical delivered a strong 3Q18, with topline rising 18.9% y-o-y to SGD22m and PATMI surging 59.8% y-o-y to SGD3.2m. This was driven by organic growth and GPM expansion, on higher contributions from higher-margin medical streams.
  • Going forward, management intends to focus expansion overseas, particularly in Vietnam and Indonesia – especially in FY19F, starting with the opening of SW1 in Vietnam in 1Q19F.

Improving overall gross margins.

  • Singapore Medical’s GPM improved to 43.4% on larger contributions from higher-margin medical streams like its aesthetics division. Revenue grew by a robust 18.9% y-o-y, with organic growth mainly still coming from foreign tourists despite an estimated drop in medical tourism numbers, due to strong competition from neighbouring countries. As a result, we believe the group is making the right moves to capture market share in the private medical practice space from competitors.

Expanding SW1 overseas.

  • Following the acquisition of SW1 Clinic – run by the ex-founders of The Sloane Clinic – Singapore Medical 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. It is looking to open a SW1 branch at OUE downtown in Singapore to capture the office working crowd by the end of Nov 2018, as well as a branch in Vietnam by 1Q19.

Looking for growth overseas.

  • Management has stated that it is likely to focus efforts on securing growth in the overseas market, especially Vietnam and Indonesia. It will be looking to move its Aesthetic SW1 brand to these countries by the end of FY19.
  • In addition, Singapore Medical Group also aims to expand the imaging and diagnostics segment into these countries as well. The group is in talks with various parties for potential JVs to hasten its growth in these countries.

Potentially major move into a hospital overseas.

  • Management revealed that it is looking into investing in a medical property overseas that it will operate. This investment is likely to be made with a few partners, with SMG taking a small stake and then renting the properties for its operations.
  • We think that SMG may be looking to open a hospital overseas as it will offer services under different medical streams in a single location.

Maintain BUY, with an unchanged DCF-backed Target Price of SGD0.56.

  • We think that SMG’s high growth will likely slow down in the next few years. However, with valuations being much lower than its peers, - while further plans may provide an earnings uplift – we make no changes to our rating and Target Price.
  • Key downside risks 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/ 2018-12-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.560 SAME 0.560

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