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DBS bullish on growth potential of Thomson Medical Group following FV Hospital acquisition

Douglas Toh
Douglas Toh • 3 min read
DBS bullish on growth potential of Thomson Medical Group following FV Hospital acquisition
The FV Hospital will help Thomson Medical Group expand its presence in Asia. Photo: Samuel Issa Chua/ The Edge Singapore
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DBS Group Research analysts Rachel Tan and Amanda Tan note the strong growth potential of Thomson Medical Group A50 -

following the company’s completed acquisition of the FV Hospital in Vietnam on Jan 17, the biggest healthcare acquisition to-date in Vietnam and Southeast Asia since 2010.

The analysts have a fair value estimate of 8 cents, based on 23 times FY2025 earnings before interest, taxes, depreciation and amortisation (ebitda), which is around 0.5 standard deviation (s.d.) below the historical mean. 

“Despite trading at a premium to its peers, Thomson Medical is expected to deliver ebitda growth with a compound annual growth rate (CAGR) of 11% between FY2024 to FY2026, much stronger than some of its peers with maturing operations,” the analysts write in their Feb 14 report.

Presently, the company has its flagship Thomson Medical Centre and 37 clinics and centres in Singapore. 

With a “strong reputation” as one of the largest private providers of healthcare services for women and children in Singapore, Thomson Medical Group has a “niche focus” on obstetrics & gynaecology (O&G), and aspires to grow its presence in the in-vitro fertilisation (IVF) space across Asia-Pacific (APAC). 

“Aside from O&G, Thomson Medical aspires to expand its medical specialty and progressively grow into a reputable full healthcare service provider,” add the analysts.

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Meanwhile, the analysts note that the FV Hospital’s acquisition will drive the company’s geographic diversification, and boost growth.

They continue: “Healthcare expenditure per capita in Vietnam registered a higher CAGR of 9.2% between 2017 to 2022 compared to other countries in the region. We understand the group remains on the lookout for further merger and acquisition (M&A) opportunities in countries such as Thailand, Indonesia, and Cambodia, to expand its pan-Asian footprint, while also seeking to de-risk via partnerships.”

Notably, the acquisition comes along with an expansion of a new wing, the H Building, with an additional 9,000 square metres (sqm) of gross floor area (GFA), an around 35% expansion from the current 26,000 sqm of GFA.

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With an estimated capital expenditure (capex) of around US$45 million ($60.6 million), the building is targeted to be completed by the end of 2025 or early 2026 assuming approvals are obtained within the timeline. 

In 2022, FV Hospital delivered revenue, ebitda and profit after tax (PAT) of $110 million, $26 million and $16 million respectively. Based on the announcement in July last year and its 2022 performance, the analysts note that FV Hospital was acquired at 16.8x enterprise value (EV)/ ebitda or around 29 times price-to-earnings ratio (P/E). 

“In our previous non-rated report on Thomson Medical Group dated Dec 15, 2023 , we had estimated that the acquisition could raise FY2025 revenue by 26% and ebitda by 19%. FV Hospital will be one of the key drivers enabling Thomson Medical to achieve revenue and ebitda growth with CAGRs of 12% and 11%, respectively, between FY2024 to FY2026. We have yet to incorporate the contribution from the new wing,” write the analysts.

The acquisition of FV Hospital will also add 230 licensed beds, which brings Thomson Medical Group's total licensed beds up to 757, a 44% increase, and grow its top line and ebitda by 26% and 19% respectively in FY2025. 

Meanwhile, Tan and Tan note that in the medium term, the planned addition of licensed beds across Singapore, Malaysia will also augment longer term profitability and cash flows for the company.

Key risks noted by the analysts include high gearing, execution risks, and a highly-regulated healthcare environment.

As at 3.50 pm, shares in Thomson Medical Group are trading 0.1 cent lower or 1.96% down at 5 cents.

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