SINGAPORE MEDICAL GROUP LTD (SGX:5OT)
Singapore Medical Group - Growth Initiatives Need Time; Downgrade to NEUTRAL
- Downgrade to NEUTRAL from Buy, with new DCF based Target Price of SGD0.48 from SGD0.56, 8% upside.
- Despite higher revenue of SGD21.6m (+12.3% y-o-y) recorded in 1QFY19, SINGAPORE MEDICAL GROUP LTD (SGX:5OT)'s PATMI decreased 3% y-o-y to SGD3.3m on higher marketing and personnel costs.
- We think that near-term profit growth should be impacted as the group is likely to incur higher costs as it embarks on aggressive growth expansion. We lower FY19F-21F earnings by 11-14%.
Aggressive organic expansion initiatives.
- SINGAPORE MEDICAL GROUP LTD (SGX:5OT) added 5 new clinics YTD. The newly opened clinics are one O&G clinic and one Paediatrics clinic (opened in January), a new breast care clinic this month, and 2 SW1 clinics in January and April (Vietnam) respectively.
- It was also mentioned that the Singapore Medical Group has plans to onboard 10-12 specialists in the current FY. Alongside the organic expansion, the group is actively seeking M&A targets and partnership opportunities.
Revenue increased 12.3% y-o-y and gross profit margin maintained.
- Revenue increased mainly due to the acquisition of Pheniks in Apr 2018 under the diagnostic & aesthetics business segment. Health business segment revenue remained flat, as revenue growth was offset by the absence of revenue from the orthopaedic clinic.
- Gross profit margin stayed the same at 46% in 1QFY19, while net profit margin decreased to 15.4% from 17.8%, due to higher distribution and selling expenses, as well as administrative cost.
Near term profitability to be impacted by the opening of new clinics.
- Typically, it takes a new clinic 2-3 years to break even. Proportionally, expenses for new overseas clinics may be higher as more distribution & selling costs are needed to market its products and services in newer markets.
- In addition, new specialists may take time to ramp up their practice to full capacity. Hence, despite healthy revenue growth, costs could outrun revenue in the next 2-3 years. As such, we lower Singapore Medical Group's FY19F-21F PATMI by 11-14%
Downgrade to NEUTRAL with new DCF-based Target Price of SGD0.48.
- Although we think that the CHA Healthcare - Singapore Medical Group partnership may create synergies and onboarding of new specialists and new clinics launched will bring in decent topline growth, near-term cost pressure should impact net profit growth.
Lee Cai Ling
RHB Securities Research
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Jarick Seet
RHB Invest
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https://www.rhbinvest.com.sg/
2019-05-10
SGX Stock
Analyst Report
0.48
DOWN
0.540
