Singapore Medical Group - UOB Kay Hian 2022-03-10: Cured Of COVID-19, Potential Takeover Target


Singapore Medical Group - Cured Of COVID-19, Potential Takeover Target

  • Singapore Medical Group announced a record-high PATMI of S$15.6m (+78.8% y-o-y), beating expectations. Recovery in demand for the diagnostic and aesthetics segment drove earnings past pre-pandemic levels. The reopening of international borders will also help the foreign patient load to recover, which historically contributed 15-20% of annual revenue.
  • Singapore Medical Group continues to make inroads in overseas growth and is focused on key vertical acquisitions. Maintain BUY with a higher PE-based target price of S$0.53.

Recovered from COVID-19, Singapore Medical Group's 2021 results beating expectations.

  • Singapore Medical Group (SMG, SGX:5OT) reported record-high revenue (+15.5% y-o-y, +6.5% y-o-y vs 2019) and net profit (+78.8% y-o-y, +14.3% y-o-y vs 2019) for 2021, forming 108.0% and 112.1% of our full-year estimates respectively. A final dividend of 0.65 cents (0.4 cents in 2020) was declared along with a special dividend of 0.25 cents, implying a payout ratio of 25% of 2021’s earnings.
  • Organic growth driven by diagnostic and aesthetics segment. Singapore Medical Group’s robust growth in 2021 was largely contributed by the diagnostic and aesthetics (D&A) segment as segmental revenue grew 29.8% y-o-y and 16.2% y-o-y as compared with 2019. This is due to stronger domestic demand for plastic surgery. We reckon that this is due to international borders being closed in 2021, resulting in patients turning to domestic providers.
  • Impressive results despite absence of foreign patients. Accounting for approximately 15- 20% of Singapore Medical Group’s historical annual revenue, Singapore Medical Group suffered from a lack of foreign medical patients as international travel remained closed for most of 2021, especially in key markets such as Vietnam and Indonesia. Despite this, Singapore Medical Group managed to post robust revenue and earnings growth for 2021.
  • As Singapore starts reopening its borders through vaccinated travel lanes, Singapore Medical Group expects a slow and gradual recovery as medical tourists return.

Healthy balance sheet.

  • With strong core business operations cash flows of S$24.4m, Singapore Medical Group improved its net cash position to S$22.9m (2020: S$15.8m).
  • Singapore Medical Group's gearing ratio also fell to 2.2% from 6.4% in 2020. We reckon that the group is in strong position to continue its organic growth in Singapore as well as to expand in overseas markets which management has earmarked as Singapore Medical Group’s next revenue growth driver.

Potential acquisition target.

  • In Mar 22, Singapore O&G (SGX:1D8), a listed obstetrics and gynaecology (O&G) company on SGX, received a voluntary unconditional takeover offer from a vehicle wholly-owned by Dymon Asia Private Equity (SE Asia) ll.
  • Singapore O&G provides healthcare undervalued as compared with similar SGX listed peers average (17.5x 2021 P/E and 14.0x 2022F P/E respectively).

Singapore Medical Group - Earnings forecast revision & recommendation

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-03-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.53 UP 0.460