Singapore Medical Group - RHB Invest 2020-05-26: Fast Forward To 2021


Singapore Medical Group - Fast Forward To 2021

  • Still NEUTRAL with new P/E-derived SGD0.25 Target Price from SGD0.35, 9% upside. Travel restrictions and closure of the aesthetic business due to the Government’s Circuit Breaker has impacted Singapore Medical Group (SGX:5OT). As the country moves towards the end of this period, it will undergo a 3-phased easing process that could last months, suggesting a slower economic recovery from COVID-19.
  • We lower our FY20F-22F earnings by 47%, 23%, and 5%, and adjust net margin expectations by -4.1, -1.4, and 0.3ppts.

Cut FY20F earnings by 47%, expecting U-shaped recovery in FY21.

  • We cut our Singapore Medical Group's FY20F-22F revenues by 26%, 15%, and 6%. This represents a 21% y-o-y topline drop to SGD75.2m for FY20F (FY19: SGD94.7m).
  • Singapore Medical Group is suffering from the travel restrictions, as 15-20% of its revenue comes from overseas patients. The performance is further dampened by the closure of the aesthetic business during the Circuit Breaker period and lower patient load across its business units.
  • Despite revenue forecast declining in excess of SGD19m, we estimate earnings to drop to SGD7.8m in FY20 (FY19: SGD13.6m) due to various cost-cutting measures, and one-off support from its landlords and the Government. We also think Singapore Medical Group will likely delay its hiring programme for the time being.
  • We adjust our FY20F-22F net margins to 10.4%, 13.3%, and 15.1% from 14.5%, 14.7%, and 14.8%. Accordingly, our revised FY20F-22F earnings are now 47%, 23%, and 5% lower. Barring any unforeseen circumstances, we expect the situation to improve towards the later part of this year with the gradual opening up of the economy.

Cash conservation mode.

  • Singapore Medical Group reduced its maiden dividend to 0.4 SG cents/share from 0.8 SG cents/share and halved its payout ratio to 14.1% from the initial 28.3% for FY19. See Singapore Medical Group Dividend History. In cash-conservation mode, hiring plans should also be stalled for now.
  • As at 31 Dec 2019, Singapore Medical Group was in a SGD5.1m net cash position, coupled with an operating cash flow from 1Q20 (and support from the Government and its landlords), we view the short-term liquidity risk as low.
  • Singapore Medical Group also has debt facilities of at least SGD9.5m that are available for drawdown.

Repayment of convertible loans.

  • The conversion rights of the SGD10m convertible loan was at SGD0.423, 80% in excess of the recent share price. Singapore Medical Group’s largest shareholder (CHA Healthcare Singapore Pte Ltd) informed the group it will not be exercising the conversion right. The convertible loan of SGD10m – drawn down on 4 Jun 2019 for the main purpose of M&A – was largely unutilised. This has caused a negative carry of SGD0.3m (at 3.5% pa) in addition to SGD0.3m in loan-related expenses.

Staying NEUTRAL.

Lee Cai Ling RHB Securities Research | Jarick Seet RHB Invest | https://www.rhbinvest.com.sg/ 2020-05-26
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.25 DOWN 0.350