A second clinic, which will be located in the heartland of Tiong Bahru, will commence operations by Nov-17, servicing over 4,000* babies and adolescents (potential patients) within the vicinity. (*Source: 2016 Population Trends, Singstat)
We are cautiously optimistic about 4Q17e but more positive on FY18e. Total birth numbers in Singapore for FY17e is expected to be lower than FY16’s. However, 3Q17 showed signs of recovery, both in (a) number of deliveries, and (b) local patient load in Dermatology segments. Moreover, we believe its Cancer-related segment would continue to gain traction and support the Group’s growth in FY18e. Assisted Reproductive Technology services under the collaboration with KL Fertility Centre will commence by 1Q18. (Related report: Singapore O&G – Completing the life cycle
Downgraded to “Accumulate” at lower TP of S$0.62 (previously S$0.65), based on FY18e EPS of 2.15 SCents pegged to forward PER of 29x.
We cut our FY17-18e revenue and earnings by 4-5% on slower patient load and margin pressures. These translate to a lower FY17-18e EPS of 1.76 SCents and 2.15 Scents.
We are cognizant of the margin pressures arising from sluggish birth rate, slowing medical tourism, higher operating costs and the latent period of the new Paediatric services. Nonetheless, we remain upbeat of the Group’s ability to deliver organic growth. The Group has been actively seeking new recruits of medical practitioners to expand its four growth pillars. Management targets to add 2 new specialists into the Group every year.
Potential re-rating catalysts:
Figure1: Historical PER since Jan-16
SOG is currently trading 28.42x, which is below long-term average of 33.8x.
Figure2: SOG is trading at a 5% discount to its peers average forward PER of 29.6x