UOB Kay Hian (UOBKH) is maintaining its “buy” call on private specialist and healthcare services provider Singapore Medical Group (SMG), but at a higher target price of 46 cents.
This is up 9 cents from its previous 37 cent call and follows the group’s Dec 18 2020, disclosure of a possible transaction involving the company’s shares, analyst Lucas Teng explains in a Jan 11.
His revised target price is line with the 12% increase in SMG’s price since the announcement. Teng believes it will give the counter a 39.4% upside from its 33 cent price on Jan 11.
Back in Feb 2019, SMG’s strategic partner, CHA Healthcare had invested some $10 million through a convertible loan at 42.3 cents. It had also bought shares from certain shareholders at 60.5 cents per share. These have since been exercised and repaid.
Headquartered in Seoul, South Korea, CHA Healthcare is one of the largest and most diversified private healthcare service groups in Asia. Currently its insiders hold some 46% in SMG.
While there is no certainty or assurance that the ongoing discussion will translate into a transaction, Teng reckons that, should a potential offer be made, SMG would be valued at a slightly higher premium or at least similar to its peers.
This is given its expansion into high-growth markets like the setting up of aesthetic clinics in Vietnam and other organic growth initiatives such as the onboarding of an IVF doctor in 3Q2020, O&G doctor in 4Q2020 and the opening of a new Women’s Health and Pediatric clinic in eastern Singapore.
Based on Teng’s projections, SMG is currently trading at 17 times FY2020 forward price-to-earnings (P/E) and 12 times FY2021 P/E. This is the result of a 49.5% drop in its net profit in 1H2020 due to the impact of the Coivd-19 outbreak, he elaborates.
See: Singapore Medical Group reports 49.5% lower earnings of $3.5 mil for 1H20
However, Teng expects a faster recovery in SMG’s patient load in light of the management’s observation of pent-up demand for elective medical services.
As such, he has raised his FY2020/2021 net profit forecast for the company by 4% and 12% respectively, in anticipation of a stronger-than-expected that could lift patient loads to 80 – 85% of pre-Covid levels this year.
“Based on our channel checks, we believe demand for elective medical services remained robust in 2H20. This could be likely due to the diversion of travel expenditure to healthcare expenditure, as well as an increasingly health-conscious population amid Covid-19,” mulls Teng.
He adds that this would likely support the earnings of healthcare players like SMG in 2H2020.
Shares of SMG closed up 1.5 cents or 4.55% at 34 cents on Jan 11.
