CFA Society Singapore
SINGAPORE (Mar 2): RHB is maintaining its “buy” call on Singapore Medical Group (SMG) with a target price of 68 cents, as the group’s turnaround is further validated by organic and inorganic growth.
This came on the back of the group announcing that its FY17 earnings surged 250.8% to a record $8.5 million from $2.42 million in FY16.
Revenue was 63.5% higher at $68.0 million from $41.6 million a year ago.
In a Friday report, analyst Jarick Seet says, “This was however short of consensus estimates but we understand it was mainly due to one-off renovation costs for its offices as well as some mergers and acquisitions (M&A) transaction costs.”
The group has decided to propose a renounceable non-underwritten rights issue of one right for every 20 existing shares at an issue price of 48 cents per share, raising up to $10.8 million.
This will further strengthen its balance sheet to support its high growth trajectory, led by organic and inorganic initiatives.
In addition, the group’s overseas expansion is gaining traction, while it remains bullish on Vietnam. A paediatrics leader has been hired to spearhead growth initiatives at its Vietnam Careplus clinics.
Meanwhile, the group’s eye clinic in Jakarta, which was loss making, is not showing signs of growth and profitability.
Currently, the group is interested to expand into new medical segments like cardiology, dental paediatrics and further expand into aesthetics.
Looking ahead, the group’s management is keen on higher margin medical segments to further boost its blended markings.
“We also expect it to also make more accretive but smaller sized acquisitions or JVs, especially in aesthetic segment in the near term, thereby hastening its growth." says Seet.
In fact, the group on Thursday evening announced that it has acquired an 85% stake in the SW1 Aesthetic Clinic.
“We expect a stronger FY18, mainly due to the full earnings accretion from its Astra Women's Specialist group of clinics (Astra) and paediatric acquisitions,” says Seet.
As at 12.05pm, shares in Singapore Medical Group are trading at 56 cents or 21.5 times FY18 recurring earnings.