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
- Maintain BUY and PE-based target price of S$0.43, pegged to its 2-year historical mean PE of 14x. Singapore Medical Group is currently trading at slightly below 1SD to its mean.
- We like the group’s organic growth prospects as it ramps up its newly established clinics.
- On the inorganic front, Singapore Medical Group still has S$7m in balance proceeds from its convertible loan with strategic partner Korean healthcare group, CHA, to conduct M&A activities.
- See Singapore Medical Group Share Price; Singapore Medical Group Target Price; Singapore Medical Group Analyst Reports; Singapore Medical Group Dividend History; Singapore Medical Group Announcements; Singapore Medical Group Latest News.
SHARE PRICE CATALYST
- Earnings-accretive M&A.
- Stronger traction in high-growth markets, such as Vietnam.
Lucas Teng
UOB Kay Hian Research
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https://research.uobkayhian.com/
2020-02-25
SGX Stock
Analyst Report
0.43
DOWN
0.620
