SINGAPORE (Mar 11): Soochow CSSSD Capital Markets (SCCM) is starting coverage on OUE Lippo Healthcare (OUE LH) at “buy” with a target price of 8.8 cents, while forecasting a 25.2% earnings per share (EPS) CAGR from FY19-22E as the group enters a “durable earnings expansion phase”, in the research house’s words.  

Based on the research house’s valuations, the stock currently trades at an attractive 1.1 times price-to-book versus the industry average of 3.8 times.

In in initiation report on Monday, analyst Cheah Zhuo En says he expects a net profit margin reversal from FY18 losses to 10.8% in FY19E on the back of a full year’s contribution from OUE LH’s recent acquisitions of Bowspirit and First REIT.

At the same time, he expects gearing to remain stable at about 1.0 times in the near term as the group continues to develop its currently-green overseas ventures into profitable operations over the next three years.

“As OUE LH’s operations in China and Myanmar [via joint ventures (JVs) with local partners] ramp up, we expect four steady streams of equity income to contribute directly the bottom-line,” says Cheah of the group’s earnings prospects.

“By taking minority stakes in overseas JVs, OUE LH is able to mainly focus on value-adding business (management contracts) without bearing the full burden of capital investments on its balance sheet. In addition, OUE LH’s current platform comes with a capital recycling mechanism, allowing it to monetse mature assets and re-invest into higher-return projects,” elaborates the analyst.    

Going forward, Cheah is anticipating the group’s inorganic growth momentum to continue as it further expands its scalable healthcare platform beyond current geographies.

“We understand that new catalytic developments are in the pipeline that would likely warrant an added component to our sum-of-the-part (SOTP) valuations,” he adds. 

Shares in OUE LH were trading flat at 6 cents before the midday trading break, or 1.1 times FY19-20E book.