SINGAPORE (Nov 13): DBS is initiating its “buy” call on Singapore Medical Group (SMG) with a target price of 75 cents on the back of continued robust growth post a successful turnaround.
In a Monday report, analyst Andy Sim projects the group’s core earnings growth of 292%/32% in FY17F/18F on the back of further scaling up of its diagnostics business; recent acquisitions; and margin expansion from larger scale of operations.
SMG’s diagnostics business has continued to reap rewards post its successful turnaround, and has a new expanded 5,500-sqft facility in Novena. Its overseas ventures in Vietnam and Indonesia could also add to its medium-term growth catalyst.
In addition, SMG is currently one of the largest private specialist healthcare provider groups in Singapore, with a network of more than 20 specialties and 30 clinics.
The groups has also increased its number of doctors to more than 30 currently compared to 26 in 2015.
The analyst predicts that this will increase further to over 40 through the group’s recruitment efforts and attractiveness given its growing size.
In the past year, the group has announced three acquisitions, comprising six O&G clinics (under the Astra Women Specialists arm) and three separate paediatric clinics, representing its first foray into a new business vertical.
See: Singapore Medical Group acquires paediatric clinic for $7.9 mil
Going forward, the group has plans to grow its O&G and Paediatrics segments by recruiting more specialists and opening new clinics.
“We believe the foray into O&G and Paediatrics will help boost SMG’s margins,” says Sim.
Furthermore, SMG has invested in joint ventures (JV) in overseas markets, namely Jakarta and Vietnam.
In Indonesia, the Ciputra eye JV clinic is showing signs of growth and profitability YTD, after an impairment loss was written off from the group’s investment in FY16.
In Vietnam, SMG has started to execute on its growth initiatives at its two 15,000-sqft clinics in Ho Chi Minh and hired a paediatric consultant to spearhead growth initiatives at its clinic in Careplus Vietnam.
Since then, another five paediatricians have been hired to ramp up the paediatrics division at Careplus Vietnam. And according to the management, patient count has grown significantly since the hiring of the paediatricians.
Sim believes that there may be potential for the group’s operations in Indonesia and Vietnam in the medium term.
However, SMG currently does not have a concrete dividend policy and has not paid dividends since FY11, but given that it is still in a growth phase, the analyst has not assumed any dividend payout in his forecasts.
As at 9.55am, shares in SMG are trading at 61 cents or 3.0 times FY17 book.
