SINGAPORE (Nov 10): Phillip Securities Research is downgrading healthcare group Singapore O&G to “accumulate” with a lower target price of 62 cents, from its previous recommendation of “buy” with a target price of 65 cents.
“We are cognizant of the margin pressures arising from sluggish birth rate, slowing medical tourism, higher operating costs and the latent period of the new Paediatric services,” says analyst Soh Lin Sin in a report on Thursday.
SOG saw its earnings slip to $2.35 million for the 3Q ended September, down 3.3% from $2.43 million a year ago, on the back of weaker-than-expected performance from its Obstetrics & Gynaecology (O&G) and Dermatology businesses.
See: Singapore O&G posts 3.3% fall in 3Q earnings to $2.4 mil
However, its Cancer-related segment continued to put in a strong performance, with revenue up 25.3% to $1.0 million on higher patient load. Year-to-date, the segment’s profit from operations have more than doubled to $0.64 million, with profit margin climbing 8.8 percentage points to 23.7%.
In addition, SOG in 3Q saw maiden contribution from the Paediatric segment, which started in July 2017. Currently comprising just one clinic at Parkway East Medical Centre, the segment will see the addition of a second clinic at Tiong Bahru by November 2017.
“We cut our FY17-18e revenue and earnings by 4-5% on slower patient load and margin pressures. These translate to a lower FY17-18e EPS of 1.76 cents and 2.15 cents,” says Soh.
Phillip’s target price for SOG is based on its forecasted FY18 earnings per share of 2.15 cents and pegged to a forward price-to-earnings multiple of 29 times.
“We are cautiously optimistic about 4Q17e but more positive on FY18e,” Soh says. “Nonetheless, we remain upbeat of the Group’s ability to deliver organic growth. The group has been actively seeking new recruits of medical practitioners to expand its four growth pillars. ”
As at 4.15pm, shares of Singapore O&G are trading half a cent lower at 51 cents, implying an estimated price-to-earnings ratio of 30.7 times and a dividend yield of 2.8% in FY17.
