SINGAPORE (May 27): RHB Group Research is keeping “neutral” on Singapore Medical Group (SMG) but with a lowered target price of 25 cents from 35 cents previously, as uncertainties are still present.
In a Tuesday report, analyst Lee Cai Ling and Jarick Seet says, “Travel restrictions and closure of the aesthetic business due to the Government’s Circuit Breaker has impacted Singapore Medical Group.”
As the country moves towards the end of this period, it will undergo a 3-phased easing process that could last months, suggesting a slower economic recovery from Covid-19. With that, Lee and Seet cut FY20 earnings forecast by 47% and expects a U-shaped recovery in FY21.
The analysts have also cut FY20-22 revenues by 26%, 15%, and 6%. This represents a 21% y-o-y topline drop to $75.2 million for FY20 from $94.7 million in FY19. SMG is suffering from the travel restrictions, as 15-20% of its revenue comes from overseas patients. The performance is further dampened by the closure of the aesthetic business during the Circuit Breaker period and lower patient load across its business units.
Despite revenue forecast declining in excess of $19 million, the analysts estimate earnings to drop to $7.8 million in FY20 from $13.6 million in FY19 due to various cost-cutting measures, and one-off support from its landlords and the government. SMG is also expected to delay its hiring programme for the time being.
“Barring any unforeseen circumstances, we expect the situation to improve towards the later part of this year with the gradual opening up of the economy,” says Lee and Seet.
Meanwhile, SMG reduced its maiden dividend to 0.4 cents per share from 0.8 cents per share and halved its payout ratio to 14.1% from the initial 28.3% for FY19. This implies that the company is in cash conversion mode.
“As at Dec 31, 2019, the group was in a $5.1 million net cash position, coupled with an operating cash flow from 1Q20 (and support from the Government and its landlords), we view the short-term liquidity risk as low. SMG also has debt facilities of at least $9.5 million that are available for drawdown,” says the analysts.
The conversion rights of the $10 million convertible loan was at 42.3 cents, 80% in excess of the recent share price. SMG’s largest shareholder (CHA Healthcare Singapore Pte Ltd) informed the group it will not be exercising the conversion right.
The convertible loan of $10 million – drawn down on Jun 4, 2019 for the main purpose of M&A – was largely unutilised. This has caused a negative carry of $0.3 million (at 3.5% per annum) in addition to $0.3 million in loan-related expenses.
As at 12.45pm, shares in SMG are trading at 24 cents or 0.7 times FY20 book with a 1.0% dividend yield.
