SAC Capital is initiating coverage on diversified medical group Livingstone Health with a ‘hold’ call and target price of 16.8 cents.
This gives the counter a free float of 25% and is up 2.1 cents from its current 14.7 cent price, analyst Peggy Mak writes in a Feb 3 note.
“Our DCF (discounted-cash flow) based price target assumes a risk-free rate of 1.8% and cost of equity of 14%,” explains Mak. She adds that the hold recommendation reflects FY2023 price-to-earnings of 10.7x19% net earnings growth.
Livingstone Health offers a range of medical services including aesthetics and wellness, anesthesiology and pain management, family medicine, internal medicine and orthopedic surgery.
The group was listed on the Singapore Exchange (SGX) via a reverse takeover in 2021.
At present, the group has 16 doctors working at its 12 clinics in Singapore. It also runs a medical spa and health screening centre here.
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Additionally, the group also has a joint venture in Cambodia to provide aesthetics, wellness services and project consultancy for the development of a medical hub.
Livingstone Health – like many other private healthcare operators in Singapore – has been affected by a drop in medical tourists over the past two years. In this time, local patients also postponed non-essential medical services. These two factors are estimated to have caused a 30% drop in patient visits, says Mak.
The analyst is now expecting the group to see a recovery in its patient visits following an easing of border restrictions as well as a stronger willingness of local patients to set aside a bigger proportion of their budget for medical wellness.
Mak is also anticipating a jump in healthcare spending, on the back of improvements in the unemployment rate, wage gains and an ageing population.
Even as things are looking up, the analyst is cautious that Livingstone Health will face challenges in the form of regional competition.
Healthcare services in regional countries has improved significantly during the pandemic, so it is likely that medical practitioners may have gained acceptance and loyalty amongst patients who used to seek treatment abroad.
Another challenge facing Livingstone Health is that doctors are its key asset. This means that the group will need to retain good doctors and increase its profits, while ensuring that patients get the medical care that they require.
“As patient-doctor relationships are sticky, patients tend to follow their doctors wherever they go. [So], the main risk for [the group] is the doctors leaving its practice,” explains Mak.
Having said that, the analyst points out that the group enjoys synergies as a diversified healthcare group.
These include: having patient referrals within the group, limited cannibalisation, not having to rely on a single discipline or doctor and enjoying an operating leverage in support staff and the procurement of supplies.
As at 4.49pm, shares in Livingstone Health were trading up 0.7 cents or 4.76% at 15.4 cents.
Cover image: Albert Chua/The Edge Singapore
