SINGAPORE (April 24): RHB Research is keeping its “buy” recommendation on Singapore Medical Group (SMG) with a higher target price of 79 cents, from 65 cents previously.
This comes after SMG recently announced the acquisition of two paediatric clinics in Toa Payoh and Bishan for $25.3 million, as well as an additional 10% stake in its subsidiary, The Cancer Centre, for $2.9 million.
SMG is “rapidly expanding into a sizable specialist group” on the back of “a string of acquisitions locally, in various medical streams like imaging diagnostics, O&G, as well as paediatrics in the past 12 months,” says RHB analyst Jarick Seet in a Monday report.
SMG’s maiden foray into paediatrics is highly complementary to its obstetrics & gynaecology (O&G) business, and turns the group into one of the largest specialist practitioners in the private sector dedicated to women, babies, and children.
The acquisition of the two paediatric clinics comes with a minimum profit guarantee of $2.3 million per annum for the next five years. According to Seet, this implies a valuation of “only 11x P/E, far below the valuation it is currently trading at.”
Meanwhile, The Cancer Centre’s FY16 net profit after taxes of $2.9 million implies a 10x P/E valuation for SMG’s acquisition of an addition 10% stake, Seet says.
“With a turnaround now further validated by both organic and inorganic growth, we are still positive on its bright outlook,” says Seet.
As at 11.40am, shares of Singapore Medical Group are trading 1 cent lower at 60.5 cents.
