SINGAPORE (June 7): RHB Research is upgrading Singapore Medical Group (SMG) to “buy” from “neutral” previously, with an unchanged target price of 48 cents.
SMG’s share price has fallen by 15% from 44.5 cents to 38 cents, which is a 52-week low since 10 May. This may have been due to recent market sentiment, coupled with the group’s higher operating cost as a result of ongoing expansion.
Another overhang could be the price disparity between the conversion price at 42.3 cents per share of the convertible loan, and the sale of vendor shares 60.5 cents per share, which may have raised some concerns as to minority shareholders’ interests.
But since the stock’s is trading at a FY19 price-to-earnings ratio of 16.8 times, compared to the current 14.4 times, in a Friday report, lead analyst Lee Cai Ling says, “We think this is a good opportunity to buy on dips.”
Earlier in February, the group announced that its 6.86% shareholder CHA Healthcare Singapore (CHAS) is increasing its stake in the group to 24.13% by acquiring $50 million worth of shares from certain SMG shareholders.
See: Singapore Medical Group announces $50 mil share purchase from existing shareholder CHA
This translates CHAS purchasing 83 million shares at 60.5 cents each to increase its stake. CHAS also provided a $10 million convertible loan at a conversion price of 42.3 cents per share. About 80% of the loan has been earmarked for M&A activities. If the bond is converted, CHAS stands to own 27.69% stake in SMG.
In 1Q19, the group opened the O&G and paediatrics clinic in Punggol and its second aesthetic clinic SW1 in downtown Singapore. It also opened a breast care clinic last month.
Moreover, SW1 has expanded into Vietnam, and it should take a new clinic about two to three years to achieve breakeven. The group intends to on-board 10-12 specialists this year, and new specialists may take time to ramp up their practice to full capacity.
As at 11.30am, shares in SMG are trading at 38 cents or 1.3 times FY19 book with a dividend yield of 1.4%.
