SINGAPORE (May 16): DBS is maintaining its “buy” call on Singapore O&G with adjusted-for-share-split target price of 80 cents on positive growth prospects even though it has had a slow start.
In a Monday report, analyst Rachel Tan says key potential catalysts include forecast-beating growth from its cancer and dermatology divisions, expansion into new specialisations like paediatrics and complementary services like IVF or imaging as well as better-than-expected margins improvement.
1Q17 growth was muted, according to Tan. Net profit was up 2.8% to $2 million on-year, forming 19% of DBS’s FY17 forecast earnings. However, management highlighted that 1Q is typically the weakest quarter and DBS has assumed marginal contributions from paediatrics in its FY17 estimates.
Key positives from 1Q results include 10% higher number of births from a year ago, positive growth momentum in cancer division and launch of paediatrics division in July. Key negatives include flat revenue for dermatology, marginal O&G market share of 7.4% and EBIT margin deterioration.
Singapore O&G is also expanding into higher-margin complementary specialised services. Now that paediatrics division will start soon, management continues to explore new opportunities in new specialisations and markets. Other complementary services to explore include IVF, childcare and imaging.
“Our target price of $0.80 (post share split) is based on the average valuation using 30x PE and DCF valuation. Our estimates have incorporated marginal contributions from paediatrics division,” says Tan.
Key risks that could derail DBS’s thesis include execution risks due to lack of track record, high dependence on a few key doctors and low stock liquidity.
Shares of Singapore O&G are down 2 cents at 65 cents.
