SINGAPORE (Feb 20): Singapore Medical Group could see a re-rating as its market recognition and track record grows following its tie-up with Korean healthcare group CHA Medical Group, according to Maybank Kim Eng.
This comes after news that CHA Medical Group, one of Asia’s leading medical groups with operations in US and Japan, will be taking a 8.8% stake in SMG by subscribing for 30 million new shares in the company.
“This positive tie-up will enable SMG to tap on CHA’s reputable obstetrics & gynaecology (O&G) specialisations; pursue overseas expansion with an established international healthcare group; and access to cash for expansion,” says Maybank analyst John Cheong in a Friday report.
(See also: Singapore Medical Group swings back to black in 1H)
“SMG intends to use the proceeds from CHA to aggressively explore growth opportunities,” Cheong adds.
The premium specialist healthcare services provider has indicated that 67% of the net proceeds will be used for M&A, 20% for expansion into other Asean countries, and the remaining 13% to grow existing business.
SMG and CHA will jointly pursue strategic initiatives in Singapore, Vietnam, and other key Asean countries following the placement, Cheong adds.
SMG in Oct 2016 had announced that it is acquiring six obstetrics and gynaecology clinics under the Astra Women Specialists group of clinics for $60 million.
(See also: Singapore Medical Group’s acquisition of O&G chain a sign of more to come)
According to Cheong, CHA’s strategic placement along with the completion of Astra Women Specialists would see SMG’s market cap rise to $224 million, from $165 million previously.
“As SMG’s market recognition and track record increase, it could re-rate closer to the market leader, Raffles Medical, which is trading at 33x FY17E P/E,” says Cheong.
Maybank is keeping its “buy” call on SMG with an unchanged target price of 59 cents.
Singapore Medical Group closed flat at 55.5 cents on Monday.
