SINGAPORE MEDICAL GROUP: DBS initiates coverage with 75-c target

Excerpts from DBS Vickers report

Analyst: Andy SIM, CFA

Initiate with BUY and TP of S$0.75. We initiate coverage on Singapore Medical Group (SMG) with a BUY call and TP of S$0.75, implying 25% upside. We believe the group's continued robust earnings growth following the successful turnaround of its operations since FY16, will provide a re-rating catalyst for the counter.

We are projecting core earnings growth of 292%/32% in FY17F/18F on the back of (i) further scaling up of its Diagnostics business; (ii) recent acquisitions; and (iii) margin expansion from larger scale of operations.


Growing network.
SMG is a private specialist and primary healthcare provider with a network of more than 20 medical specialties, based primarily in Singapore. Post its business review in 2013 and the appointment of its current CEO, Dr Beng Teck Liang, SMG has embarked on several acquisitions and operational initiatives and has successfully turned around, posting profit in FY16.

Valuation: Our TP of S$0.75 is based on 25x FY17F/18F PE. This implies a PEG of c.0.3x based on earnings CAGR (FY16-FY19F) of 80% given the robust growth projections.  -- Andy Sim, CFA (photo) Analyst, DBS Vickers

The number of doctors in the group has grown from 26 in 2015 to more than 30 currently, and we project this to increase further to over 40 through its recruitment efforts and attractiveness given its growing size.

In addition, its diagnostics business has continued to reap rewards post its successful turnaround, and has a new expanded 5,500-sqft facility in Novena. Its overseas ventures in Vietnam and Indonesia could also add to its medium-term growth catalyst.

Key Risks to Our View:

Lower-than-expected profitability from acquisitions, departure of key doctors, inability to ramp up operations are threats to growth thesis.

Full report here.