Singapore Medical Group - UOB Kay Hian 2020-02-25: 2019 Dividends Come To Fruition; BUY On Solid Organic Delivery

SINGAPORE MEDICAL GROUP LTD (SGX:5OT) | SGinvestors.io SINGAPORE MEDICAL GROUP LTD (SGX:5OT)

Singapore Medical Group - 2019 Dividends Come To Fruition; BUY On Solid Organic Delivery

  • Singapore Medical Group’s 2019 net profit rose 6% y-o-y to S$13.7m, in line with expectations. Revenue growth was solid, increasing 11% y-o-y, while organic growth looks to be gaining some momentum.
  • While COVID-19 will not be ideal for elective medical services, the group’s solid organic growth and discount valuation are still attractive propositions.
  • Maintain BUY and PE-based target price of S$0.43.



4Q19 RESULTS


In-line results; 4Q19 net profit up 25% yoy.

  • Singapore Medical Group (SGX:5OT) reported in-line 4Q19 net profit of S$3.7m. 2019 net profit rose 6% y-o-y to S$13.7m, making up 101% of our forecast. 4Q19 revenue increased 17% y-o-y to S$25.9m, driven by organic growth of clinics.

Dividends come to fruition.

  • Singapore Medical Group announced its maiden final dividend of 0.8 S cents, implying an estimated payout ratio of 28%. The group also announced a formal dividend policy of no less than 20% of core earnings. Assuming a similar payout ratio, our 2020F dividend yield is about 3%.

Organic growth gaining momentum.

  • The quantum increases in revenue from the health and diagnostic & aesthetics segments were larger at S$1.9m and S$1.8m in 4Q19 respectively (3Q19: Health: S$1.1m; diagnostics & aesthetics: S$1.0m).
  • For 2019, the health revenue was up 4.4% while diagnostics and aesthetics revenue grew 31% y-o-y. Singapore Medical Group has been steadily adding new specialists in 2019.

Higher gross margin.

  • Gross margin was up slightly to 45.6% in 2019, a solid feat, given the organic expansion the group has been undertaking. While administrative expense increased 13% y-o-y due to higher headcount from the gestation of new clinics.
  • The group had better associate contributions in the quarter, driven by an improvement at PT Ciputra.


STOCK IMPACT


Aesthetics and elective medical services to be hit by COVID-19.

  • Management noted that non-essential medical services would be harder hit by COVID-19, with the group’s aesthetics services likely being affected by a larger extent. Foreign patients make up 12- 15% of revenue and Singapore Medical Group would likely see weakness in medical tourism as patients postpone non-essential medical care.

Still ramping up in hires.

  • The group added a gynaecologist and two paediatricians in 4Q19. Singapore Medical Group will continue to pursue organic growth through recruitment initiatives to hire more specialists in both key and complementary verticals.


EARNINGS REVISION/RISK

  • We trim on net profit forecasts for 2020-21 by up to 2.8% on projected impact of a weaker aesthetics segment and lower foreign patient load.


VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • Earnings-accretive M&A.
  • Stronger traction in high-growth markets, such as Vietnam.





Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-02-25
SGX Stock Analyst Report BUY MAINTAIN BUY 0.43 DOWN 0.620



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