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Singapore Medical Group kept at 'buy' on strong FY18 results, CHAS investment

PC Lee
PC Lee • 2 min read
Singapore Medical Group kept at 'buy' on strong FY18 results, CHAS investment
SINGAPORE (Feb 21): RHB Research is maintaining Singapore Medical Group (SMG) at “buy” on news that shareholder CHA Healthcare Singapore (CHAS) is raising its stake in the group.
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SINGAPORE (Feb 21): RHB Research is maintaining Singapore Medical Group (SMG) at “buy” on news that shareholder CHA Healthcare Singapore (CHAS) is raising its stake in the group.

On Wednesday, SMG announced that CHAS and five existing shareholders have entered into an agreement to purchase a total of 83 million shares at 60.5 cents each or $50.2 million in total. Upon completion, CHA should hold 24.13% stake in SMG. If the convertible bond is also converted, CHA stands to own 27.69%.

Under the deal, CHAS will also provide SMG a $10 million convertible loan at an interest rate of 3.5%. About 80% of the net proceeds would be reserved for M&A while the rest will be used for general business purposes, said SMG.

Assuming the loan is fully converted, SMG would have to issue 23.64 million conversion shares to CHA at a conversion price of 42.3 cents each. This would bring the total number of shares to 504.36 million or 4.92% of the existing share capital.

Meanwhile, SMG reported a 25.1% y-o-y rise in FY18 revenue to $85 million while PATMI surged 52.1% y-o-y to $12.9 million. This was driven by organic growth and gross margin expansion due to a higher contribution of higher-margin medical streams like its rapid growing aesthetic business SW1. Gross margins grew to 44.4% from 42.6%.

Following the acquisition of the SW1 Clinic which was operated by the ex-founders of The Sloane Clinic, SMG is in the advanced stages of expanding its aesthetics platform into the region. The SW1 branch at OUE Downtown Gallery in Singapore has opened for business to capture the office crowd, while the branch in Vietnam should start operations by 1Q19.

Management has stated that it is likely to focus efforts in securing growth from overseas markets -- especially Vietnam and Indonesia -- due to SMG’s existing footprint in both countries. It would also be looking to move its Aesthetic SW1 brand to these countries by end FY19. Further, the group is aiming to expand its imaging and diagnostics segment into these countries as well.

“Maintain ‘buy’ with new DCF-backed target price of 54 cents, down from 56 cents to account for the CB conversion," says lead analyst Lee Cai Ling.

As at 11.53am, shares in SMG are up 3.19% or 1.5 cents at 48.5 cents or 14 times FY21F earnings.

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