Singapore Medical Group - UOB Kay Hian 2020-08-07: 1h20: Value In A Healthy Recovery


Singapore Medical Group - 1h20: Value In A Healthy Recovery

  • Singapore Medical Group’s 1H20 net profit fell 48% y-o-y to S$3.5m, affected by the deferment of elective medical services as well as a decline in foreign patient load. 2H20 will likely see a resumption of deferred medical services, though a recovery in the number of medical tourists is expected to be gradual in nature.
  • We like the group’s strong balance sheet, which is prime to take advantage of any industry consolidation.
  • Maintain BUY on the undervalued healthcare player with a revised PE-based target price of S$0.37.

Singapore Medical Group's 1H20

1H20 net profit down 48% y-o-y.

  • Singapore Medical Group (SGX:5OT) reported 1H20 net profit of S$3.7m, which was not a surprise, given the falling patient loads as a result of the deferment of non-essential medical services and temporary clinic closures during the circuit breaker period. This also coincided with a significant decline in medical tourism.

Hit by reduction in elective procedures.

  • Revenue in 1H20 for Diagnostic & Aesthetics Business segment was down S$4.1m (-30% y-o-y) while the Health segment was down S$1.6m (-5% y-o-y) in the same period. Non-essential medical services were more negatively affected by the COVID-19 pandemic. Overall, revenue was down 13% y-o-y in 1H20.

Lower margins as expected.

  • Gross margin was down 5.5 ppt y-o-y in 1H20, due to the change in sales mix within both the Health Business segment and the Diagnostic & Aesthetics Business segments. There was a slight decrease in staff costs, arising from wage credits received under the Job Support Scheme as part of the COVID-19 support measures announced by the government.

Barring second wave of infections, 2H20 should see return of elective medical services.

  • Management noted that it saw pent-up demand returning for elective procedures and aesthetics towards the end of June, although uncertainty remains on whether the momentum for such services will continue. Singapore Medical Group is also dependent on medical tourism to some extent, which may not return readily in the near term, given the high COVID-19 infection rates seen from other countries such as Indonesia.


Organic growth still in focus

  • Singapore Medical Group continues to pursue organic initiatives with the onboarding of a new IVF doctor in 3Q20, a new O&G doctor in 4Q20 and the opening of a new Women’s Health and Paediatric clinic in the eastern region of Singapore in 4Q20.

Looking forward to FY21

  • Singapore Medical Group is still in a healthy net cash position of S$11.2m in 1H20 while its convertible loan with CHA Healthcare has been repaid, which resulted in slight interest savings.
  • While proposed dividend for FY19 had been revised due to prudent conservation, the group remains poised to take advantage of industry consolidation and further opportunities of growth with its high cash balance.


  • Cut Singapore Medical Group's 2020-22 earning by 18-47%. We cut 2020 net profit estimates by 47% to S$8.4m, incorporating the effects of temporary clinic closures and lower patient load.
  • We assume a gradual recovery in foreign patient load between 2021-22 and cut our earnings by 27% and 18% for 2021 and 2022 respectively,



  • Recovery of foreign patient load.
  • Earnings-accretive M&A.
  • Stronger traction in high-growth markets, such as Vietnam.

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-08-07
SGX Stock Analyst Report BUY MAINTAIN BUY 0.37 DOWN 0.430