Singapore Medical Group - RHB Invest 2019-06-07: Buy On Dips; Upgrade To BUY


Singapore Medical Group - Buy On Dips; Upgrade To BUY

  • Upgrade to BUY from Neutral, with unchanged DCF-based Target Price of SGD0.48, 26% upside.
  • Singapore Medical Group's share price has fallen by 15% to SGD0.38 from SGD0.445 since 10 May. The stock is currently trading at 14x P/E, a discount to its peer average of 23x P/E. We think that it is a good level to accumulate.

CHA Healthcare paid an average of SGD0.549 per Singapore Medical Group share

  • SINGAPORE MEDICAL GROUP LTD (SGX:5OT) first issued 30m shares via private placement to CHA Healthcare in Feb 2017 at SGD0.50/share, and subsequently, CHA subscribed to 3m rights shares at SGD0.48/share. In Feb 2019, CHA increased its stake to 24.13% (from 6.87%) by purchasing 83m shares from Singapore Medical Group’s existing shareholders (including management) at SGD0.605/share.
  • CHA is also providing a SGD10m convertible loan at a conversion price of SGD0.423/share. About 80% of the loan has been earmarked for M&A activities. If the bond is converted, CHA stands to own 27.69% stake in Singapore Medical Group.

Near term profitability should be impacted by aggressive growth plan

  • In 1Q19, Singapore Medical Group opened the O&G and paediatrics clinic in Punggol, and its second aesthetic clinic SW1 in downtown Singapore. Singapore Medical Group also recently opened a breast care clinic last month.
  • Regionally, it has expanded SW1 into Vietnam, and it should take a new clinic 2-3 years to breakeven. Singapore Medical Group intends to on-board 10-12 specialists this year, and new specialists may take time to ramp up their practice to full capacity.

1-year share price return of over 20%.

  • Singapore Medical Group's share price slipped 15% since 10 May with a 1-year return of -22.4%. The share price fell due to recent market sentiment, coupled with Singapore Medical Group’s higher operating cost as a result of its ongoing expansion plan.
  • Another overhang could be the price disparity between the conversion price (at SGD 0.423/share) of the convertible loan, and the sale of vendor shares (at SGD0.605/share), which may have raised some concerns as to minority shareholders’ interests.
  • The stock is currently trading at 14x P/E, a discount to peer average of c.23x P/E.

We upgrade to BUY from Neutral

Lee Cai Ling RHB Securities Research | Jarick Seet RHB Invest | https://www.rhbinvest.com.sg/ 2019-06-07
SGX Stock Analyst Report BUY UPGRADE NEUTRAL 0.480 SAME 0.480