SINGAPORE (Nov 9): DBS Vickers Securities has upgraded its view on Singapore O&G (SOG) to “neutral” from “fully valued” while raising its target price on the healthcare stock to 52 cents from 41 cents previously, which is pegged to 25 times P/E on FY18F earnings estimates.
This follows the group’s announcement of its earnings results for 3Q17, which declined 3.3% on-year to $2.35 million on higher expenses over the quarter.
See: Singapore O&G posts 3.3% fall in 3Q earnings to $2.4 mil
In a Thursday report, DBS lead analyst Rachel Tan estimates a stronger growth of 13-16% for the stock over FY18-19F.
This is to be led by organic growth with contributions from the ram-up in cancer and pediatrics divisions, contributions from the group’s new fertility division, recovery in O&G and dermatology, as well as inorganic growth from potential mergers and acquisitions (M&As), in Tan’s view.
She also believes the market has priced in expectations of a soft FY17F earnings performance for SOG in the face of weak 9M17 earnings.
“Despite our cautiously optimistic view on potential upside SOG could draw from potential acquisitions/M&A, we believe at the current valuation of 26 times FY18F PE, the market has priced in potential inorganic growth,” adds the analyst.
Conversely, UOB Kay Hian continues to rate the stock at “buy” with a lower price target of 59 cents from 62 cents before to reflect lower revenue assumptions from the O&G segment, which is based on peers’ average 2018F P/E of 27.1 times compared to 27.9 times previously.
Noting a sequential q-o-q pickup in deliveries as the impact of Zika normalises, UOB lead analyst Thai Wei Ying believes cancer to be the bright spot and growth driver for SOG in 2018 as latest data suggest an increasing number of breast-related diseases and health screenings related to early detection.
Thai is also positive on the outlook for the group’s paediatric segment, given its strong O&G base which she believes will feed patient referrals, as demonstrated by the positive cross-selling synergies between SOG’s paediatric clinic at Parkway East Medical Centre.
“While 9M17 earnings were dragged by the continued impact of Zika, we expect the O&G segment to show a strong pick-up in 2018, supported by strong rampup from new segments such as cancer and paediatrics,” says the analyst.
Overall, Thai projects a 3-year CAGR of 10% for 2017-19, and expects the paediatric segment to break even by 2018.
As at 1:12pm, shares in SOG are trading 1 cent lower at 52 cents.
