Excerpts from RHB report

Analysts: Lee Cai Ling & Jarick Seet

• Still NEUTRAL with new P/E-derived SGD0.25 TP from SGD0.35, 9% upside. Travel restrictions and closure of the aesthetic business due to the Government’s Circuit Breaker has impacted Singapore Medical Group.

S'pore Medical Group

Share price:
23 c

25 c

As the country moves towards the end of this period, it will undergo a 3-phased easing process that could last months, suggesting a slower economic recovery from COVID-19.

We lower our FY20F-22F earnings by 47%, 23%, and 5%, and adjust net margin expectations by -4.1, -1.4, and 0.3ppts.

Cut FY20F earnings by 47%, expecting U-shaped recovery in FY21. We cut our FY20F-22F revenues by 26%, 15%, and 6%.

This represents a 21% YoY topline drop to SGD75.2m for FY20F (FY19: SGD94.7m). SMG is suffering from the travel restrictions, as 15-20% of its revenue comes from overseas patients.

$7.8 m net profit forecast 

diagnostic imaging

"Despite revenue forecast declining in excess of SGD19m, we estimate earnings to drop to SGD7.8m in FY20 (FY19: SGD13.6m) due to various cost-cutting measures, and one-off support from its landlords and the Government."

-- RHB report

The performance is further dampened by the closure of the aesthetic business during the Circuit Breaker period and lower patient load across its business units.

We also think SMG will likely delay its hiring programme for the time being.

We adjust our FY20F-22F net margins to 10.4%, 13.3%, and 15.1% from 14.5%, 14.7%, and 14.8%. Accordingly, our revised FY20F-22F earnings are now 47%, 23%, and 5% lower.

Barring any unforeseen circumstances, we expect the situation to improve towards the later part of this year with the gradual opening up of the economy.

Cash conservation mode. SMG reduced its maiden dividend to 0.4 SG cents/share from 0.8 SG cents/share and halved its payout ratio to 14.1% from the initial 28.3% for FY19.

In cash-conservation mode, hiring plans should also be stalled for now. As at 31 Dec 2019, the group was in a SGD5.1m net cash position, coupled with an operating cash flow from 1Q20 (and support from the Government and its landlords), we view the short-term liquidity risk as low.

SMG also has debt facilities of at least SGD9.5m that are available for drawdown.

• Repayment of convertible loans. The conversion rights of the SGD10m convertible loan was at SGD0.423, 80% in excess of the recent share price. SMG’s largest shareholder (CHA Healthcare Singapore Pte Ltd) informed the group it will not be exercising the conversion right.

The convertible loan of SGD10m – drawn down on 4 Jun 2019 for the main purpose of M&A – was largely unutilised.

This has caused a negative carry of SGD0.3m (at 3.5% pa) in addition to SGD0.3m in loan-related expenses.

Staying NEUTRAL. The lowering of FY19 dividend seems to suggest a certain magnitude of impact is being felt by the group.

As the Circuit Breaker ends, Singapore will enter into three phases – which could last several months.

We think uncertainties are still present, hence, we maintain our call with a new SGD0.25 TP, which is pegged to FY21F 1-year forward P/E of 9.8x from 11.3x.

Full report here. 

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