Thomson Medical Group - Phillip Securities 2020-02-03: Credit View


Thomson Medical Group - Credit View

  • We have a NEUTRAL view on Thomson Medical Group as we expect increasing expenses and capex requirements to weigh on earnings moving forward.

Thomson Medical Group - Company Background

  • Listed on the Mainboard of the SGX, Thomson Medical Group (SGX:A50) is one of Asia’s largest healthcare players specialising in obstetrics and gynaecology. It has a market cap of about S$1.6bn.
  • Principle activities:
    • Healthcare: The group owns Thomson Medical Pte Ltd (TMPL) and TMC Life Sciences Bhd (TMCLS). TMPL is one of Singapore’s leading provider of private healthcare services for women and children. It owns and operates the Thomson Medical Centre. TMCLS is a Bursa-listed healthcare group in Malaysia. It owns and operates Thomson Hospital Kota Damansara (200 bed hospital located in the golden triangle of Petaling Jaya), TMC Fertility Centre (assisted reproduction centre) and the developing Thomson Iskandar Medical Hub (three hospitals and a long-term care facility) in Iskandar Malaysia.
    • Vantage Bay Healthcare City: Currently a freehold waterfront land in Johor Bahru’s City Centre. The group plans to build a regional-first integrated medical, education and wellness hub. This comprises a medical hub - three hospitals and a long-term care facility; a wellness hub providing therapeutic care and lifestyle related services, including age friendly assisted-living residences; and an education and training hub which will comprise a medical training institute and teaching hospital.

The Positives

Strong operating cash flows despite declining EBITDA margins.

  • For the quarter ended 30 September 2019, revenue increased by 10.4% y-o-y to S$59.6mn, boosted by higher patient load, increased bill sizes and greater revenue intensity in the group’s hospitals and specialist clinics in Singapore and Malaysia. However, EBITDA decreased 11.9% to S$13.4mn, hampered by higher operating costs owing to cost inflation in goods, services and wages, and costs related to new clinics and the opening of Paragon Medical Centre.
  • We believe the cause of higher expenses is due to the group’s foray into new areas of specialties. Thomson Breast Centre and Thomson Surgical Centre were recent additions of specialty clinics at Thomson Medical Centre in Singapore.
  • Despite this, the group recorded higher cash flow from operations (S$24.1mn vs S$10.4mn for the 3Q19 and 3Q18 respectively), mainly from working capital improvement.

Strong cash position of c.S$122mn compared to short term debt of c.S$13mn, with quick ratio at 1.66x.

The Negatives

Capex requirements due to expansion plans likely to continue to weigh on interest coverage moving forward.

  • Thomson Medical Group’s main projects include a new wing at Thomson Hospital Kota Damansara for 400 additional beds and the Vantage Bay Healthcare City development. The group expects to complete the medical hub there (Thomson Iskandar Medical Hub) within 12 to 24 months after Bukit Chagar RTS station’s scheduled opening in end 2024.
  • EBITDA interest coverage declined from 5.40x in 2017 to 2.16x in the last twelve months (LTM) due to narrowing EBITDA margins. Interest expenses had also increased from c.S$9.9mn to c.S$25.3mn from 2017 to LTM due to higher debt levels.

Additional Information

  • Former CEO of Cordlife Group, Dr Wong Chiang Yin, to replace Mr Roy Quek as the group’s CEO and executive director starting from 1 February 2020. Mr Roy Quek, who quit as Thomson Medical's CEO in September, has also quit as a non-executive director. He is leaving to pursue other interests, the company said.
  • Dr Wong is an independent director of RHT Health Trust (SGX:RF1U) and a special adviser to mainboard-listed Thomson Medical Group. He was the CEO of Mainboard-listed Cordlife Group (SGX:P8A) from 2016 to 2018, and CEO and executive director of the hospital unit at Pantai Holdings.
  • Peter Lim holds a deemed interest of 88.57% in Thomson Medical Group. In 2019 he was ranked the 10th richest person in Singapore by Forbes with a net worth of US$2.5 billion.


Timothy Ang Phillip Securities Research | 2020-02-03
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