UOB Kay Hian (UOBKH) is maintaining its “buy” call and target price of 48 cents on Singapore Medical Group (SMG).
This is pegged to its peers’ average price-to-earnings (PE) of 17x 2021 PE and is believed to give the counter a 45.5% upside from its 33 cent price, analyst Lucas Teng writes in an Aug 4 note.
His move follows the group’s 1H2021 earnings of $7.2 million, up 108% y-o-y due to the low base of the year before.
See: Singapore Medical Group posts record 1H21 earnings of $7.2 mil
This is in line with expectations, says Teng, adding that it forms 52% of his full-year estimate for the group.
His optimism stems from the steady demand in the group’s healthcare services segment which rose 0.2% q-o-q in 2Q2021 despite the Phase 2 (Heightened Alert) measures.
Aside from this, its revenue from diagnostics and aesthetics services was up 77% y-o-y during the first six months of the year.
Teng expects this growth trend to continue, especially since demand for such services continues to stay strong amid higher medical expenditure and a recovery of healthcare services.
In the long run, he believes the reopening of borders may “potentially impact the private healthcare industry as domestic discretionary consumer spending slows and shifts overseas”.
Even so, Teng highlights the management’s view that some customer stickiness with healthcare services is likely to remain.
Having said that, with foreign patients contributing some 15% to 20% of the group’s revenue – it stands to gain from borders reopening.
“We believe that a recovery of the group’s medical tourists will be a key factor for the group’s growth, due to the higher billing intensity of medical tourists,” says Teng. This seems plausible given the increase in Covid-19 vaccination rates.
Meanwhile, he foresees some challenges with its two overseas entities – CityClinic Asia Investments in Vietnam and PT Ciputra SMG in Indonesia. Both of these have been affected by lockdowns to curb the spread of Covid-19 infections.
Teng expects challenging conditions to persist in the near term as the countries deal with the infections. The only plus he sees is the group’s support of Covid-19 testing in Vietnam.
Elsewhere, the group’s partnership with CHA Healthcare and City Fertility – one of the largest IVF & fertility service groups in Australia – has continued to gain traction. SMG is in the final stages of closing what Teng calls “an earnings accretive acquisition” which will expand its footprint in Western Australia.
Currently, the group’s investment stake in Australia stands at around 13%.
It is now looking to open new clinics and add on O&G specialists and pediatricians to its network of 14 specialist clinics across the heartlands.
Shares in SMG closed up 0.5 cents or 1.52% at 34 cents on Aug 4.
