Excerpts from analyst's report
Maybank Kim Eng analyst: John Cheong
 Singapore Medical Group (SMG) is a primary and secondary healthcare specialist group with 28 employed doctors and more than 35 associated doctors. It focuses on healthcare, diagnostics, and aesthetics. (Photo: Company)
Initiate SMG at BUY with Target Price of SGD0.59
Its renewed growth profile stems from its earnings turnaround in 1H16, as a result of efforts from the new CEO and Tony Tan (founder of Parkway Holdings, a multi-billion dollar healthcare group today), who took over the ailing company in 2013. Despite M&A being a key part of the company’s growth strategy, we forecast nothing in addition to those already completed. One further M&A deal could lift our FY17E EPS & TP by at least 7%. |
Scalable asset-light model
SMG’s asset-light model allows it to scale up rapidly. Since 2013, the number of doctors has risen 75% to 28. For M&A, SMG has been able to secure synergistic deals. Its successes include:
- Acquiring and turning around loss-making medical screening businesses
- Acquiring a profitable women’s specialist group made up of senior doctors at 13x P/E with 5-yr profit guarantee.
It aims to add at least SGD1m in earnings via M&A each year and it is also expanding overseas.
| ♦ M&A key to growth strategy |
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-- John Cheong (photo) |
One further M&A deal could lift our FY17E EPS & target price by at least 7%.Attractive market positioning
SMG’s multi-disciplinary platform differentiates it from other listed healthcare players and allows it to tap more growth opportunities.
It attracts young and motivated doctors, as it offers a good cross-referral network.
As the platform grows, SMG will acquire senior doctors that seek to grow their practices, like the recent proposed acquisition of Astra Women’s Specialist Group. It prefers buying practices that are willing to provide mentorship and has a stable patient pool.
| Stock price | 48c |
| 52-week range | 14c - 48.5c |
| Market cap | S$143.1 m |
| PE ratio | 175.2 |
| Price-to-book | 11.5 |
| Debt/EBITDA | 0.923 |
| Source: StockFacts | |
Under-researched; M&A potential not yet priced in
Our TP of SGD0.59 is based on 27x FY17E EPS, pegged to the average 2-yr forward P/E mean of small-cap healthcare peers in Singapore (Q&M, ISEC, Singapore O&G).
As SMG’s market recognition increases and it further establishes its growth track record, we believe it could re-rate closer to the market leader, Raffles Medical’s FY17E P/E of 33x.
Valuation cross-check using DCF indicates a TP of SGD0.56. We have not factored in any future M&A, where a SGD1m profit deal could lift EPS by c.7%. Risks are competition, integration risk and regulatory changes.
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