Livingstone Health - SAC Capital 2022-05-30: Higher Costs For Staff & Supplies Begin To Bite

LIVINGSTONE HEALTH HLDGS LTD (SGX:PRH)

Livingstone Health - Higher Costs For Staff & Supplies Begin To Bite

Livingstone Health (SGX:PRH)'s FY22 (Apr 2021 to Mar 2022) revenue were 6.7% higher than our expectations, but net profit missed by 28.0%, hit by a sharp rise in staff costs and cost of supplies and consumables. The jump in cost was more pronounced in 2H.
As a % of revenue, staff costs in 2H rose 4.6% pt h-o-h to 53.4% and supplies and consumables +3.4% pt to 21.6%. We do not think these would ease, given the current inflationary environment and a tight labour market.

The higher costs led Livingstone Health's 2H22 EBITDA to decline 30% h-o-h, and EBITDA margin fell 8.8% pt to 14.3%. This is at the lower end of the range for SG-listed healthcare groups.

Livingstone Health's FY22 revenue rose 40.6% y-o-y, even when compared with a 15-month period in FY21, fuelled by more doctors on board, and the acquisition of 51%-owned Phoenix Medical Group in late FY21.
To-date, it has 16 medical doctors practicing at 12 clinics. 2H22 revenue was 13.8% higher than 1H22, contributed mainly by the sale and administration of vaccines. The inoculation exercise has tapered off as the national vaccination rate has reached a high level and more infections among the population has also achieved herd immunity.
Livingstone Health's 2H22 net profit of S$1.0m was 52.6% below 1H22, of which about S$0.9m was contributed by Phoenix, we estimated. One positive is net debt has reduced to S$0.2m (Sep 21: S$2.7m), and net gearing is healthy at 2.8% (Sep 21: 67%).
Livingstone Health issued 117.5m new shares (26.9% of enlarged share cap) valued at S$0.20 each to the vendors of its RTO exercise to compensate for higher than estimated FY21 profits. These new shares are also entitled to FY22 dividend of 0.12 cents/share. No new proceeds are received. The new shares result in EPS dilution from FY23E.

Livingstone Health's revenue growth in FY23E will be driven by return of patient loads with border reopening, as elective medical procedures that were postponed are expected to resume. However, margin pressures are expected to persist from higher costs for staff and medical supplies.
We lowered our FY23E and FY24E earnings estimate for Livingstone Health by 28.3% and 31.8%. Our DCF-derived target price for Livingstone Health is also revised downwards to S$0.156 (COE: 14%) on an enlarged share base. Maintain HOLD.
See

Peggy Mak SAC Capital Research | https://www.saccapital.com.sg/ 2022-05-30

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.156 DOWN 0.168