SINGAPORE (April 21): Maybank Kim Eng is maintaining its "buy" on Singapore Medical Group with a higher target price of 78 cents on the acquisition of two paediatric clinics in Toa Payoh and Bishan for $25.3 million.
The valuation of the two clinics is 11x P/E with a five-year profit guarantee of $2.3 million p.a. They are expected to provide synergies and cross-selling opportunities for its women's health division, which has eight specialists.
"We remain positive on SMG's ability to attract senior specialists, after its first major acquisition of Astra in Feb 2017," says Maybank in a Friday research report, adding that the latest acquisition will give SMG a specialisation that complements its fast-growing obstetrics & gynaecology (O&G) practice, which has eight doctors.
The two practices are expected to enlarge its client base from women to babies and children. They are located in prominent heartlands, led by experienced doctors with Dr Heng Siok Kheng with 19 years of experience and Dr Oh Meng Choo with 29. Both will serve six years and are committed to "identifying and mentoring talented paediatricians". Organically, SMG will employ two more O&G specialists in the near term.
Maybank says management continues to improve its existing operations. Ventures in Indonesia and Vietnam are seeing better patient demand and cost discipline. Operating losses in Indonesia are narrowing and breakeven is expected in FY17. Separately, SMG will be raising its stake in its cancer clinic to 90% from 80%, for $2.9 million. It will issue 5.4 million new shares at 54 cents each for this. The move is expected to raise its earnings by $0.3 million and FY18E EPS by 2%.
Shares of SMG are up 6 cents at 62 cents.