SINGAPORE (May 15): Phillip Capital is maintaining its “accumulate” recommendation on Singapore O&G (SOG) with a target price of 42 cents.

The group on Monday announced that its 1Q18 earnings have increased by 23.7% to $2.5 million, compared to $2.0 million in 1Q17.

Revenue was 17.3% higher at $8.2 million from $7.0 million last year, on the back of higher contribution from its Obstetrics & Gynaecology (O&G), Cancer-related, and Dermatology segments, as well as maiden contribution from its new Paediatrics segment.

See: Singapore O&G posts 23.7% rise in 1Q earnings to $2.5 mil on higher revenue

In a Tuesday report, analyst Soh Li Sin says, “We expect its Cancer-related segment to support Group’s FY18e profitability amidst persistent headwinds – sluggish birth rate; and structural slowdown in medical tourism.”

In addition, the group is also introducing new income streams, including collaborating with SATA CommHealth, which will commence in end-May, as well as tapping into an unserved niche market for High Intensity Focused Ultrasound (HIFU) treatment.

SOG will provide on-site medical services to SATA CommHealth with 50% profit sharing for an initial term of 12 months.

“While we do not expect a significant revenue generated from this collaboration, it allows the Group to expand its potential patient pool in the heartland areas,” says Soh.

Meanwhile, the HIFU treatment is a non-surgical procedure to treat uterine fibroid, using focused ultrasound energy, as well as liver tumour. Farrer Park Hospital is expected to bring in this machine in the coming months.

The group believes that this new treatment could attract foreign patients from the region, as it is currently only available in China, South Korea and Myanmar in Asia.

Moreover, the group has also been actively hiring new medical practitioners to expand its four growth pillars. It targets to hire two to three new specialists to its O&G, Dermatology and/or Paediatrics segments by FY18.

“We are cognisant of the margin pressures arising from the latent period of the new doctors,” says Soh.

The analyst also likes SOG for its consistency in gaining traction in the O&G market.

As at 10.45am, shares in SOG are trading flat at 38 cents or 4.0 times FY18 book with a dividend yield of 4.1%.