SINGAPORE (Feb 17): Singapore Medical Group says a leading Korean healthcare group is taking a 8.8% strategic stake in the provider of premium specialist healthcare services.

CHA Medical Group will be subscribing to 30 million new SMG shares at 50 cents each or a 6% discount to its last closing price.

In a Friday note, Maybank analyst John Cheong says CHA is widely recognised as Korea’s leading expert in infertility, women’s health and maternity care, with 6,000 deliveries and 12,000 IVF cases annually.

Meanwhile, SMG has built up sizeable operation with eight doctors in the O&G segment after the acquisition of Astra Women’s specialist group.

Cheong says the tie-up will enable SMG to tap on CHA’s reputable obstetrics & gynaecology (O&G) specialisations; pursue overseas expansion and excess cash for expansion.

SMG intends to use the proceeds from CHA to aggressively export growth opportunities.  67% of the net proceeds will be used for M&A, 20% for expansion into other Asean countries and 13% to grow existing business.

Together with the completion of Astra Women Specialist, the strategic placement will increase SMG’s market cap to $224 million, based on 422 million shares at 53 cents each.

Cheong says the strategic stake will enable SMG to leverage on CHA’s expertise in the O&G field to enhance its women’s specialist division.

“Maintain ‘buy’ with target price of 59 cents, based on a P/E of 27x FY17 EPS, the average two-year forward mean of small-cap healthcare peers in Singapore,” says Cheong.

“We maintain our EPS as dilution should be temporary, we expect the proceeds to be deployed quickly for EPS accretive expansion,” adds the analyst.

Shares of SMG are up 5 cents at 58 cents.