SINGAPORE (Mar 1): UOB Kay Hian is maintaining its “buy” call on Singapore Medical Group (SMG) with a P/E-based target price of 83 cents, pegged to the peer average FY18 P/E ratio of 26.8 times.
In a Thursday report, analyst Nicholas Leow highlights that the group’s 4Q17 results announced yesterday were in line with UOB’s estimates with FY17 earnings more than trebling to $8.5 mil due to earnings-accretive acquisitions made during the year – which in turn added other disciplines to the SMG specialist verticals.
See: Singapore Medical Group FY17 earnings surge 250.8% to $8.5 mil on higher revenue
In particular, the group’s diagnostics and aesthetics business segment’s revenue rose by $5.8 million due to its acquisition of a remaining 61.9% interest in Lifescan Imaging.
See: Singapore Medical Group fully acquires Lifescan Imaging for $8.5 mil
“The group continues to enjoy synergy from its acquisitions which can be seen from the improvements in its gross profit margins which rose to a record 43% in FY17 from 36% in FY16,” says the analyst, noting that the demand for private healthcare remains strong.
“2018 is likely to be a similar story where SMG enters into joint ventures (JVs) and makes acquisitions to bolster its position as the go-to regional premium healthcare specialist,” he adds.
This is because Leow expects SMG’s partnership with its major shareholder, CHA Healthcare (CHC), to bear fruition in 2018 as they embark on bringing in newly-acquired IVF capabilities throughout the Asia Pacific region, with Vietnam being a natural target for progression given SMG’s existing presence there.
“Furthermore, given the clear profit targets specified in some of the acquisitions such as Astra Women Specialists, Children’s Clinic Central Pte Ltd, Babies and Children Specialist Clinic Pte Ltd, this should give investors some visibility in earnings for 2018,” says Leow.
As at 3.03pm, shares in SMG are trading flat at 56 cents, or 14.1 times FY18 book.