Clearbridge Health Limited - Phillip Securities 2019-05-30: Ramping Up

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CLEARBRIDGE HEALTH LIMITED (SGX:1H3)

Clearbridge Health Limited - Ramping Up

• CLEARBRIDGE HEALTH LIMITED (SGX:1H3)'s 1Q19 revenue/PATMI made up 7.4%/0.3% of our full-year estimates.
• Healthcare system revenue surged 892% y-o-y to S$1.3mn.
• Medical clinics and centres revenue grew 267% y-o-y to S$0.9mn.
• We expect higher revenue contribution from the new acquisitions and business expansions to kick in from 2Q19 onwards to reach our FY19e earnings estimates.
• Maintain BUY with an unchanged Target Price of S$0.28.

The Positives

Healthcare system (TMJ + Marzan + Laboratory) revenue surged 9x y-o-y to S$1.3mn.

• The growth was due to the acquisition of PT Tirta Medika Jaya (TMJ) located in Indonesia, in April 2018. The number of TMJ’s renal care centres that are under contract with hospitals in Indonesia increased by 22 y-o-y to 37 contracts currently. The key feature of renal care is its recurrent revenue stream (dialysis is a lifetime treatment). From the 37 contracts, revenue was from 23 operational hospitals, with the remainder under renovation.
• We expect TMJ’s revenue growth to pick up in the following quarters as renal care volume increases and more hospitals complete their renovations.

Medical clinics and centres revenue grew 267% y-o-y to S$0.9mn.

• The growth was due to Clearbridge Health’s expansion of medical clinics and centres in Hong Kong, Malaysia and the Philippines, coupled with revenue contribution from Medic Laser and Surgical Private Limited (MSLC) acquired in April 2018.

The Negatives

Temporary disruption to business in Clearbridge Medical Philippines (Marzan),

• due to renovations and delay of receivables from the Department of Social Welfare and Development (DSWD). Renovations at Marzan commenced around 4Q18, resulting in a disruption to business in 1Q19. However, renovations were completed in February 2019 and revenue should recover in 2Q19.
• Pharmacy sales fell due to a delay in medical subsidy claim receivables from DSWD, caused by a migration of government systems.

Margins to remain under pressure.

• Gross profit margin fell 14.6 p.p. y-o-y to 43.5% due to a 692.4% y-o-y increase in purchases, which rose in tandem with higher business activity as the Group expands.
• Purchases mainly comprised direct expenses incurred in processing specimens by in-house laboratory testing facilities or outsourced third-party clinical laboratories, as well as consumables and medicines used by medical clinics/centres.

Investment Actions

Maintain BUY with an unchanged Target Price of S$0.28.

• We believe the two primary growth drivers for Clearbridge Health is the healthy underlying demand for healthcare services in the three key countries that it is operating in – Indonesia, Philippines, Singapore, and its aggressive M&A in various EBITDA accretive businesses.
• Despite this quarter’s miss in earnings forecast, we expect higher revenue contribution from the following acquisitions and business expansions to kick in from 2Q19 onwards to reach our FY19e earnings estimates.
• The growth drivers:
  1. Recovery of patient volume from Marzan
  2. Increased renal care patient volume in TMJ as more hospitals become operational
  3. New IGM acquisition in Indonesia
  4. Nine newly acquired dental clinics in Singapore
  5. Expansion of Hong Kong clinic
  6. New Paediatric clinic in Malaysia

Valuation

• We used DCF valuation to fully capture Clearbridge Health impressive growth over the next five years. See attached PDF report for valuation details.
• Maintain BUY with an unchanged Target Price of S$0.28.
• For more details on Clearbridge Health’s business strategy, please refer to our initiation report dated 1 April 2019 - Clearbridge Health Ltd - Rolling Up Profits Centres In Healthcare.

Phillip Research Team Phillip Securities Research | https://www.stocksbnb.com/ 2019-05-30

SGX Stock Analyst Report BUY MAINTAIN BUY 0.280 SAME 0.280

* The report is produced by Phillip Securities Research under the ‘SGX StockFacts Research Programme’ (administered by SGX) and has received monetary compensation for the production of the report from the entity mentioned in the report.