SINGAPORE (Feb 6): RHB is maintaining its “buy” call on Singapore Medical Group (SMG) with a target price of 79 cents.
This came on the back of the group entering into a joint venture (JV) with South Korea’s CHA Medical Group to enter the Australian market by acquiring a 65% stake in City Fertility Centre (CFC), Australia’s fourth largest in vitro fertilisation (IVF) clinic group.
See: Singapore-Korea consortium buys stake in Australian fertility clinic
This move would strengthen the group’s IVF arm.
CHA will own 20% of the JV and in turn will have a 13% stake in CFC.
Currently, CFC has seven IVF centres and employs nearly 50 doctors in major cities including Brisbane, Melbourne, Sydney, and Adelaide, as well as the Gold Coast.
In a Tuesday report, analyst Jarick Seet says, “We understand that this investment would be earnings accretive to SMG and the acquisition is to be funded by internal cash proceeds.”
The analyst also believes that SMG and CHA is likely to use CFC as a platform, as well as a basis to replicate its model in other markets in Asia Pacific – Malaysia, Indonesia and Vietnam – under a new brand name.
It is likely to do so in the form of new JVs or by means of acquisitions.
Meanwhile, the group’s management says that it is keen to expand into new medical streams with higher margins, such as cardiology, dental paediatrics and further expand into aesthetics.
The group is also keen on aiming for the premium value space within these medical streams and focus on providing quality and more sophisticated, higher value treatments.
However, the analyst reckons that the group is likely to be making smaller acquisitions than before, targeting single-digit multiple acquisitions. Seet also does not rule out the chance of the group making larger acquisitions, albeit likely with a fund-raising exercise.
“We expect a stronger FY18 mainly due to the full earnings accretion from its acquisitions it made in 2017, especially in the paediatrics and gynaecology fields,” says Seet.
As at 10.15am, shares in SMG are trading 1 cent lower at 56 cents or 20 times FY18 recurring earnings.
