Singapore O&G Ltd.
More than stork delivery
SINGAPORE | HEALTHCARE | INITIATION 17 June 2016 . Gaining market share by increasing number of clinics, specialties and choices. BUY (Initiate) . Effects from newly acquired Dermatology and Aesthetic business to kick-in this year. LAST CLOSE PRICE SGD 0.820 . Additional growth pillar (Paediatrics) by 2017. FORECAST DIV SGD 0.028 TARGET PRICE SGD 1.000 . Initiate with “Buy” rating and SGD1.00 TP, implying a 25.4% upside. TOTAL RETURN 25.4%
Investment Merits COMPANY DATA (a) Growth story. Growing organically and inorganically to gain market share and expand O/S SHARES (M N) : 238 client base. SOG started with only Obstetrics and Gynaecology (O&G) services in 2011, M ARKET CAP (USD mn / SGD mn) : 144 / 195 expanding from a team of two O&G specialists to five. It has subsequently added three 52 - WK HI/LO (SGD) : 0.85 / 0.62 cancer specialists (two in 2014 and one in 2016) and one skin specialist (in 2015) to its 3M Average Daily T/O (mn) : 0.08
team. SOG has expanded from two clinics to 10 clinics in 6 locations. In Jul-16, it will MAJOR SHAREHOLDERS (%) add another clinic into its portfolio, totalling to 10 specialists operating from 11 clinics Dr. Heng Tung Lan 29.44% in 7 locations. Dr. Lee Keen Whye 18.88% (b) Diversification empowering its resiliency and less O&G-reliant. Successful integration Dr. Beh Suan Tiong 10.15% enables realisation of synergies and unlocking of value. SOG targets to add children Dr. Lim Teng Ee Joyce 8.56% healthcare services (Paediatrics) into its portfolio by 2017. Eric Choo 7.71% Dr. Choo Wan Ling 7.71% (c) Long term proposition in becoming a comprehensive female medicine and whole life provider, which could lock-in its female patient base for the duration of their lifespan. PRICE PERFORMANCE (%) 1M T H 3 M T H 1Y R
(d) Increasing market share with supportive government initiatives and favourable macro COM PANY 3.9 5.4 17.6 backdrop. STI RETURN 1.44 (0.75) (13.48)
(e) Experienced team of specialist medical practitioners. Most of its physicians have long PRICE VS. STI and established track record of at least 10 years in their respective field. 0.95 (f) Conveniently-located clinics with most of its medical clinics located within major 0.85 hospitals and are easily accessible by public transport. 0.75 (g) Strong financial position and clean balance sheet. Zero-debt with net cash position of 0.65 S$24.2mn (vs. market capitalisation of S$191mn) as at 31 Dec-15. 0.55 0.45 Investment Risks Jun-15 Sep-15 Dec-15 Mar-16 (a) Domestic and regional competition. SOG SP EQUITY FSSTI index (b) Lease renewal and unable to obtain a suitable location. Source: Bloomberg, PSR (c) Manpower risk. Key personnel risks, as the Group was highly dependent on three of its KEY FINANCIALS specialist medical practitioners; and challenges to retain and expand its talent pool. SGD M N F Y 14 F Y 15 F Y 16 F F Y 17F (d) Potential dilution in shareholders’ equity and shareholdings if the Group issues new Revenue 14 16 27 31 shares to finance its acquisitions. Also, future sale post moratorium or issuance of a EBITDA 4 5 6 10 large number of shares may have a downward pressure on share price. NPAT (adj.) 4 5 8 10 (e) Other risks: execution risks; single country risk; change of regulations and licensing EPS (S Cents) 1.20 1.46 1.83 2.01 requirements; liquidity risk as SOG is Catalist-listed; competition laws and regulations PER, x (adj.) 12.6 17.9 23.1 20.2 could limit growth; and occurrences of epidemics and pandemics may lower demand. P/BV, x 4.5 4.0 7.6 7.1 Investment Actions DPS (S Cents) - 2.0 2.8 3.2 Div Yield, % 0% 4% 3% 4% We think the stock has further upsides stemming from its 1) expansion plan backed by ROE, % 46% 30% 34% 36% strong financials and clean balance sheet, and 2) growing customer base underpinned by Source: Company Data, PSR est. favourable macro environment and experienced specialist team. We initiate coverage on SOG with a “Buy” rating with a target price of S$1.00 based on Valuation Method estimated 3.55 cents FY16 EPS and 28.2x FY16F PER. This implies an upside of 25.4% (with P/E Multiple @ 28.2x dividends) from its last closing price. Soh Lin Sin (+65 6212 1847) [email protected] Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE) MCI (P) 118/10/2015 Ref. No.: SG2016_0122
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Company Summary Company Overview Singapore O&G (SOG) is a leading group of Specialist Medical Practitioners dedicated towards women’s health and wellness with a long and established track record in the Obstetrics and Gynaecology (O&G) field. Its goal is to provide holistic, comprehensive, effective, and affordable life-long healthcare services to women and children. It specializes in pregnancy care and delivery, the female reproductive system, gynaecological and breast cancer, as well as skin and aesthetic treatments. It currently houses a team of physicians, comprising five O&G specialists, three cancer specialists, and one skin specialist. The Group is based in Singapore, and operates 10 clinics in 6 different locations. Its clinics are conveniently-located in the central and east regions of Singapore. (a) 2 clinics in Parkway East Medical Centre (b) 1 clinic in Paragon Medical Suites (c) 2 clinics in Gleneagles Medical Centre (d) 1 clinic in Thomson Medical Centre (e) 3 clinic in Mount Elizabeth Novena Specialist Centre (f) 1 clinic at Cassia Crescent It mainly derives its revenue from the provision of O&G services, which includes general and ancillary surgical services, breast and gynaecological cancer treatments, and medication and supplements. Nonetheless, medication and supplements are not significant revenue generators or profit contributors. O&G services contributed 91% of its FY15 total revenue, while the remaining 9% are from cancer-related services. Nonetheless, we expect the contribution from cancer-related business segment to pick up, and its net profit margin to improve, as Dr. Radhika’s business turned profitable in 2H15. Due to its O&G-focused business nature, its customer base comprises mainly individual patients. Management shared that, now, with the additional non-O&G services offered, it could tie up with corporate accounts to expand its customer base. SOG was listed on the Singapore Exchange – Catalist board on 4th Jun-15, with an offer price of SGD0.25.
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Investment Thesis 1. Steady population growth provides a stable patient base As of Jun-15, Singapore has a total population of 5.5 million. According to the government White Paper published on 2013, Singapore’s total population of residents and non-residents in 2020 is projected to be between 5.8 and 6 million. By 2030, Singapore's total population could range between 6.5 and 6.9 million. No doubt that these projections are subject to Singapore’s fertility trends, life expectancy, social and economic needs, and the global and regional environment, but the government is projecting the population to grow at a 15-year compounded annual growth rate (CAGR) of 1.12%-1.52%. Figure 1: SG: Population Growth Slowing but stable growth rate above (Thousand) Population Population Growth Rate (%) 1%. 6,000 6%
5,000 5%
4,000 4%
3,000 3%
2,000 2%
1,000 1% Source: CEIC, PSR est. 0 0% 05 06 07 08 09 10 11 12 13 14 15
Figure 2:
T12M Total Live Births Due to the predominantly ethnic- SG Total Live Births 60,000 %y-y T12M Total Live Births 25% Chinese demography in Singapore, Source: CEIC, PSR est. obstetrics services are seasonally 21.4% y-y 20% 50,000 Year of Dragon: 1988, 2000, 2012 higher in the Year of the Dragon, 15% which is regarded by the Chinese as 40,000 the most auspicious in the almanac. 7.6% y-y 10% 8.4% y-y 30,000 5%
0% 20,000 -5% 10,000 -10%
0 -15% 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Figure 3: Gross Reproduction Rate: Per Female The vital rates in Singapore have SG: Vital Rates Net Reproduction Rate: Per Female 1.6 Source: CEIC, PSR Fertility Rate: Per Female 11.0 remained relatively stable over the Crude Birth Rate: Per Population (RHS) past 10 years. 1.4
1.2 10.0
1.0
0.8 9.0
0.6
0.4 8.0 05 06 07 08 09 10 11 12 13 14 15
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Note: Gross reproduction rate is the average number of daughters each female would have during her reproductive years if she were to experience the age-specific fertility rates prevailing during the period. Net reproduction rate is the average number of daughters each female would have during her reproductive years if she were to experience the age-specific fertility and mortality rates prevailing during the period. It is a refinement of the gross reproduction rate, and is also the measure of replacement of population. Fertility rate is the average number of live-births each female would have during her reproductive years if she were to experience the age-specific fertility rates prevailing during the period. It is derived by aggregating the age-specific fertility rates of females in each of the reproductive ages for a specific year. Crude birth rate is the ratio of number of live-births per thousand population in a given year Figure 4:
Population Growth (2005 vs 2014) Compared to developed countries, like 2.8% US and Japan, as well as some of its 2005 2.4% Source: CEIC, PSR neighbouring countries, Singapore has 2014 a relatively high population growth 2.0% rate. 1.6% 1.2% 0.8% 0.4% 0.0% -0.4% US JP SG CN ID MY TH
Figure 5:
Fertility Rate: Total Births per Woman (2005 vs 2014) And a relatively low but stable birth 3.0 rate… 2005 Source: CEIC, PSR 2.5 We may see Singapore following in 2014 Japan’s footsteps with an improved 2.0 fertility rate, as Singapore government 1.5 ramps up its policies and measures to create a supportive environment for 1.0 Singaporeans to form families and raise children. 0.5
0.0 US JP SG CN ID MY TH
2. Change in social norms increase demand for O&G services A woman's age is the single most important factor affecting her fertility. As a woman ages, her likelihood of infertility rises. In addition, the risks of pregnancy and birth complications increase for older mothers. The Singapore society is facing an ageing population issue, as well as experiencing a shift in values and norms. Women are often seen to be focused on establishing their careers in their youth, deferring marriage and thus leading to later conception. These demographic factors should support the demand for O&G – (i) to seek fertility advice or assistance, and (ii) medical care for older mothers.
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Figure 6: Increasing average age of brides in Singapore Figure 7: Shift towards later motherhood (after age 30)
120 SG: Median Age of Brides (First Marriages) SG: Age-specific Fertility Rate (Per 1000 Female) 29 100 2005 28 2010 80 2015 27 60 26 40 Source: CEIC 25 Source: CEIC 20 24 0 05 06 07 08 09 10 11 12 13 14 15 - 19 20 -24 25 - 29 30 - 34 35 - 39 40 - 44 45 - 49
Figure 8: Aging population SG Population Pyramid We expect the trend of late marriage 2015 ≥75 to continue, given Singapore’s ageing 70-74 2005 population coupled with rising cost of 65-69 living. 60-64 55-59 50-54 45-49 40-44 35-39 30-34 21.9% of 21.2% of 25-29 Total Total 20-24 Population Population 15-19 10-14 5-9 0-4 Source: CEIC Person ('000) 400 200 0 200 400
3. Rising consumer affluence within the region Increased health awareness coupled with rising purchasing power within the Southeast Asian region, have buoyed demand for comprehensive and quality specialist healthcare services. Singapore is a recognised regional medical hub which attracts many overseas patients annually. On the domestic front, we see preferences for private doctors over public doctors. The percentage of total live birth in private sector hospitals has been on a gradual upward trend since 2008, sustaining at above 58% level. Figure 9: Preference for Private Hospitals Public Sector Hospitals Source: Statistics Singapore, PSR Private Sector Hospitals Other Locations (Thousands) Private Sector % Total Live Birth (RHS) 50 62%
40 61% 16 17 17 16 16 16 30 15 60%
20 26 25 59% 23 23 23 24 24 10 58%
0 0.1 0.1 0.1 0.1 0.1 0.2 0.1 57% 2008 2009 2010 2011 2012 2013 2014
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Figure 10 & 11: A glance at Private Sector vs Public Sector
Private Sector Public Sector Comparison by Nature offer a wider range of services lower set charges and fees offer greater flexibility access to select direct and indirect subsidies Pros potentially more experienced specialist medical practitioners - command a price premium - patients are generally not entitled to choose - extremely fragmented, as many of the O&G their consultants Cons clinics in Singapore are sole proprietorships - potentially more consultants may be younger and less experienced - longer waiting times
Source: Company IPO Prospectus, PSR
Private Sector Public Sector Competition by Service Offerings O&G services Private O&G groups, such as Thomson The O&G departments of public hospitals, Women’s Clinics, The Obstetricians and such as KK Women’s and Children’s Hospital, Gynaecology Centre, and sole practitioners National University Hospital and Singapore General Hospital Polyclinics Breast care and Private gynae-oncology groups, such as The breast and cancer related departments of cancer related Thomson Women Cancer Centre public hospitals, such as KK Women’s and services Private surgical clinics, such as general surgery Children’s Hospital, National University department at Raffles Medical Hospital Hospital, Singapore General Hospital, the Sole practitioners National Cancer Centre Dermatology and Private dermatology groups, such as Thomson The dermatology departments of public skin care services Specialist Skin Centre hospitals, such as KK Women’s and Children’s Private dermatology clinics, such as the Hospital, National University Hospital, general dermatology department at Raffles Singapore General Hospital and the National Medical Hospital Skin Centre Sole practitioners
Source: Company IPO Prospectus, PSR
4. Supportive government initiatives to increase birth rate In response to the increasing standard of living and growing needs in Singapore, the government has provided various supports to help parents in the areas of conception and delivery costs, and to further defray child-raising costs. (a) Promoting birth or to boost the Total Fertility Rate (TFR) Medisave Maternity Package Medisave for Assisted Conception Procedures (ACP) Co-Funding Assisted Reproduction Technology (ART) Treatment (b) Defraying child-raising costs including healthcare costs Enhanced Baby Bonus Enhanced Medisave Grant for Newborns Medishield Coverage for Congenital & Neonatal Conditions Tax Reliefs & Rebate for Parents Subsidies for Centre-Based Infant & Child Care Foreign Domestic Worker Levy Concession
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Figure 12: SG: Government Expenditure on Health, Social and Family Development 125% %y-y T4Q Govt Expenditure on Health Development 100% %y-y T4Q Govt Expenditure on Social and Family Development 75% 50% 25% 0% -25% -50% Source: CEIC, PSR -75% Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
5. Market outlook for cancer services is positive Cancer is on the rise as growth notifications is accelerating. It is becoming an increasing public health problem globally. It affects all ages and socio-economic groups. According to Ministry of Health Singapore, cancer is the number one cause of death in Singapore, accounting for 29.4% of the total death in 2014. Access to effective, quality and affordable cancer services are highly sought-after Although breast cancer is 29.2% of diagnosed cases among females, but it only accounts for 17.6% of cancer-related deaths. This suggests that it is treatable, and early detection is necessary. And SOG provides both services of detection and treatment. Figure 13: Ten most frequent cancers in females (%), 2010-2014 Female-specific cancers (i.e. breast cancer and gynaecological cancers) account for 44.4% of cancers among Singapore women. Breast cancer is the most common cancer among females.
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Figure 14: Risk of developing cancer by age 75 among females, 2010-2014 1 in every 15 female Singapore residents is likely to develop breast cancer before the age of 75.
Figure 15: Ten most frequent cancer deaths in females, 2010-2014 Breast cancer is the most fatal cancer among females, accounting for 17.6% of cancer-related deaths females during the period of 2010-2014. This also implies that, 21.1 in every 100,000 female Singapore residents, is likely to die due to breast cancer.
Note: Crude rate (CR) refers to the number of cancer deaths divided by the mid-year general population respectively. Confidence interval (CI) is a range of values so defined that there is a specified probablity (in this case is 95%) that the value of a parameter (in this case is the CR) lies within it.
Source: Trends in Cancer Incidence in Singapore 2010-2014, National Registry of Disease Office
6. In tune with Asia’s burgeoning cosmetics and skin care industry Dermatology market holds a high potential for growth, driven by: (a) increasing number of people suffering from skin disorders The most common conditions in Singapore are: acne, cold sores, hair and scalp problems, eczema, nail problems, psoriasis, rashes and warts. According to National Skin Centre, eczema affects 1 out of 10 persons at some time in their life, and it could occur at any age. Combination of change of weather (rising heat and frequently hit by dry spells) and deteriorating air quality (due to haze and air pollution), could set the number of people diagnosed with skin issues to continue to increase. (b) increasing awareness for aesthetic through social media, acceptance, and availability of treatments According to an audit report on Beauty and Wellness Industry published by IRAS, there are more than 18,000 businesses in the Beauty and Wellness industry in Singapore. It cited a 2010 survey that more than 95% of Singaporeans spent more than $25 on beauty treatments each month while 53% spent between $25 and $49. And majority
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of the survey respondents said that they would continue with this spending pattern and that they had no intention of cutting back on such expenses. Gauging from the population in 2010, we estimate that the Beauty and Wellness services market size in Singapore was worth at least S$1.425bn.
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Investment Merits 1. Growing market share The Group currently commands a market share of c.4% of total live birth in 2015. As mentioned earlier, private hospitals accounts for at least 58% of total live birth in Singapore. This implies a huge room for the Group to grow its market share. Between 2012 and 2015, the number of deliveries by the Group grew at a compound annual growth rate (CAGR) of 9.5%. As at end-2015, it has delivered a total of 1,633 babies, implying one baby delivered by an SOG obstetrician every 5.4 hours. In long term, it aspires to reach 4,500 deliveries a year. To gain more market share, the Group intends to: (a) Extend its network island wide by establishing more access points (main focus in near term) Its SOG specialists currently operate from 9 clinics in 5 different locations: 8 centrally located clinics within major hospitals, namely Mt Elizabeth Novena Medical Centre, Gleneagles Medical Centre, Parkway East Medical Centre, and Thomson Medical Centre. A suburban clinic located at Cassia Crescent. Another clinic in the pipeline would be Mt. Alvernia Medical Centre (target to commence in Jul-16). The Group has also expressed its interest in penetrating into suburban locations to enhance its reach. Nonetheless, this would very much depend on successful and suitable recruitments. (b) Expand the number of specialties and choices By hiring more specialists, particularly in medical specialties it previously was unable to offer. For example, SOG has recruited two Cancer Specialists at end- 2014 and acquired a skin care business in Dec-15. This year, SOG has recruited a new Breast Surgeon (joined in May-16). It may venture into other specialist services like infertility and IVF services, child care services, and paediatrics including neonatology. It may also offer ancillary goods and services to patients, such as quality goods that are not easily available in Singapore. These may include a range of organic products, low allergy supplements and niche products. It also aims to attract junior specialist medical practitioners with attractive value propositions – a ready patient pool, assistance with respect to base salary and lower set up costs. Younger specialist medical practitioners like Dr. Natalie Chua has benefited from spill over of patients from Dr. Heng, who has longer track record in the O&G field. (c) Expand its customer base by being able to offer some of these services outside of Singapore The Group is open to overseas partnerships. Its IPO Prospectus stated its intention to set up overseas sales representative offices and/or establish a network of overseas sales agents in selected ASEAN countries and PRC. If this materialises, it could diversify and grow its patient base to include more corporate clients and medical travellers. The Group also intends to customise and provide women’s healthcare packages targeted at corporate clients, to diversify its currently individual-clients- dominated customer base.
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Figure 16: Figure 17: Number of Deliveries by SOG 6 O&G Strength and Market Share 6% Source: Company Source: Company 2,000 Number of O&G specialist 5 SOG Market share 5% 4-Yr CAGR at 9.5% 3.9% 1,500 4 3.5% 4% 2.7% 2.7% 3 3% 1,000 2 2% 500 1 1%
0 0 0% 12 13 14 15 12 13 14 15
2. Diversification empowering its resiliency The Group started off with only one business segment helmed by two O&G specialists. Over the years, it has subsequently expanded the number of specialties and choices offered. (a) 1st Pillar: O&G Forms a stable base for SOG’s topline, but lower margin (net profit margin at c.30%) driven by volume. The demand for obstetrics services depends very much on domestic demand. Due to citizenship issues, it has lesser risk of patient outflow to overseas but it is also unlikely to see an influx of foreigners seeking obstetrics services in Singapore. Hence, we do not expect a huge jump in demand but it should be stable as per government’s projected population growth. (b) 2nd Pillar: Breast and Cancer-related The Group’s margin driver (net profit margin at c.87%). It has a larger market base, catering to both local and foreign patients. Considering that the two cancer specialists who joined SOG towards the end of 2014 have turned profitable in 2015, we expect the Group’s margins to improve from FY15. (c) 3rd Pillar: Dermatology & Aesthetic Reap synergies of lateral integration between O&G & Dr. Joyce Lim’s businesses. Skin problems are common during pregnancy; hence, patients from the SOG clinics with skin problems can be referred to Dr. Joyce Lim. Meanwhile, Dr. Joyce Lim’s patients with hormonal, medical or surgical problems can be referred to SOG’s panel of doctors. In addition, demand for its skin care products could ride on revolution of feminine beauty ideal and rising consumer affluence. These products could be sold across SOG’s various clinics. (d) (Future) 4th Pillar: Paediatrics (target to commence in 2017) Lock-in the period of its female patient base for additional 16 years by providing healthcare services to new-borns, infants, children and adolescents (up to the age of 16). Group revenue would continue to be stabilised by obstetrics, as the other pillars are subject to overseas competition. At the same time, the other pillars would diversify the risk of domestic demographic changes, and enable the Group to be less dependent on the domestic obstetrics services. The Group aims to achieve 25% revenue contribution from each of the four pillars. This is also in line with the Group’s long term proposition of becoming a comprehensive female medicine and whole of life provider. The Group aims to lock-in the entire life span of its female patient base – by offering integrated long-term care
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services and engaging them at every stage of their lives. Figure 18:
Source: Company
3. Long and established track record Most of its medical clinics and specialist medical practitioners have a track record of more than 10 years in their respective field. Dr. Lee Keen Whye and Dr. Heng Tung Lan, each has more than 30 years’ experience in the O&G field. Figure 19: S/N Specialist Years of experience O&G Specialists 1 Dr. Lee Keen Whye >30 years 2 Dr. Heng Tung Lan >30 years 3 Dr. Choo Wan Ling >10 years 4 Dr. Beh Suan TIong >20 years 5 Dr. Natalie Chua >10 years 6 Dr. Hong Sze Ching (starting in Jul-16) ~10 years Breast and Cancer-related Specialists 1 Dr. Cindy Pang >10 years 2 Dr. Radhika Lakshmana >18 years 3 Dr. Lim Siew Kuan >10 years Skin Specialist 1 Dr. Joyce Lim >20 years Source: Company
4. Conveniently-located clinics and flexibility to choose hospitals
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Convenience is very important for pregnant mothers, given the discomfort they experience particularly in the last term of pregnancy. Most of SOG's clinics are located within major hospitals and are easily accessible by public transport. It also operates a medical clinic in a residential neighbourhood at Cassia Crescent. Meanwhile, its cancer treatment services are just as accessible, with locations at Gleneagles Medical Centre, Parkway East Medical Centre and Mount Elizabeth Novena Specialist Centre. All of SOG’s O&G specialist medical practitioners are accredited to perform deliveries and O&G surgeries in the Parkway Group of Hospitals in Singapore, as well as Mount Alvernia Hospital, Thomson Medical Centre and all major private hospitals in Singapore. Meanwhile, breast and general surgeon, Dr. Radhika, is accredited to perform surgeries in all the Parkway Group of Hospitals, Mount Alvernia Hospital, Khoo Teck Phuat Hospital and Raffles Medical Hospital. Obstetricians, who are operating from medical clinics which are not located in a hospital, could arrange for their patients to deliver their babies in any of the hospitals. In the event of the absence of any doctor, the Group has contingent referral plans in place to ensure the continuity of the treatment and service provided to its patients.
5. Strong financials and clean balance sheet In FY15, revenue grew at 21.2%, which translated to a 25.7% growth in its bottom line. On a 3-yr CAGR basis, revenue and earnings grew at 26.5% and 21.2% p.a., respectively. Its net profit margin has been above 30% for the past four years. We believe that it is sustainable and its (i) long track record in O&G field, as well as (ii) specialized services in cancer-related and dermatology, could enable the Group to continue to demand for such premium. Zero debt and cash rich. As at end-FY15, the Group is in a net cash position of S$24.2mn (accounts for 87.6% of its total assets). Its total liabilities stood at S$3.6mn, are mainly payables (45.5%) and tax liabilities (44.0%). The S$20mn war chest (cash less total liabilities) is sufficient to acquire five to six clinics (based on its range of historical CAPEX at S$200k to S$300k per deal), without raising any capital via debt or equity.
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Financial Highlights Figure 20: Figure 21: Revenue, Gross and Net Profit Growth Margins
Revenue Gross Net profit Gross EBITDA Net profit 70% 100% 89% 89% 62% 85% 86% 60% 80% 50% 57% 60% 40% 43% 45% 39% 38% 30% 36% 26% 40% 20% 21% 37% 36% 8% 21% 20% 31% 33% 10% 6% 4% 0% 0% FY13 FY14 FY15 FY12 FY13 FY14 FY15
Source: Company, PSR est. Source: Company, PSR est. Improved margin – Streamlined processes to achieve synergies and cost effectiveness in FY14 Figure 22: Segment Revenue Revenue by Segment
1% FY2014 FY2015 Obstetrics & Gynaecology 9% Cancer-related
99% 91%
Source: Company The Group’s revenue is mainly derived from the provision of O&G services, which includes general and ancillary surgical services, breast and gynaecological cancer treatments, and medication and supplements. Towards end-FY15, the Group added another pillar of growth – dermatology and skin care. Figure 23: Figure 24: Cash and cash equivalents ROA and ROE 30,000 ROA ROE 50% 46% 45% 20,000 40% 36% 35% 37% 30% 10,000 26% 23% 25% 29% 22%
20% 23% 21% 0 15% 19% FY12 FY13 FY14 FY15 FY16F FY17F FY13 FY14 FY15 FY16F FY17F Source: Company, PSR est. Source: Company, PSR est.
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Figure 25: Employee Costs
No.r of Specialists No. of Clinic Staff 25 40% Employee costs % revenue 38% 38% 20 36% 36% 15 33% 34% 10 32% 32%
5 30%
0 28% FY12 FY13 FY14 FY15 Source: Company, PSR est.
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Potential Catalysts 1. Effects from previous recruitment drive to kick-in this year By end-FY16, we should see a full-year contribution from the newly acquired Dr. Joyce Lim’s Dermatology and Aesthetic businesses (in Dec-15); as well as additional revenue streams from a new Breast Surgeon (joined in May-16) and a new O&G specialist (expected to start in Jul-16). 2. Building market presence The new O&G specialist, Dr. Hong Sze Ching, will be operating from Mt. Alvernia Medical Centre, bringing the total number of clinics to 11 and its presence to 7 locations in Singapore. The Group has also expressed its interest in penetrating into suburban locations to enhance its reach. In its IPO prospectus, the Group has indicated its interest to expand regionally in longer term. Although this is not its near term focus, Management noted that it would consider exploring the possibility of partnering with regional partners for referrals, or setting up overseas sales representative offices and/or establish a network of overseas sales agents, to attract more medical travellers, in selected ASEAN countries and China. 3. Venturing out of its comfort zone Intend to incorporate, partner or acquire medical ancillary services so that it could offer a more holistic approach to patients. This may include establishing more clinics or the acquisition of existing synergistic businesses such as provider of screening and imaging services. Additional business segments provide SOG with new pillars of growth and cushion the adverse impact from possible transition to low fertility due to ideological change. (a) Paediatrician – SOG aims to add children healthcare to the Group by 2017. SOG obstetricians have delivered thousands of babies over the last few years. In 2015 alone, it has registered 1,633 deliveries, and the number is expected to continue to grow. These babies could potentially form the patient pool for its new pillar of growth. (b) Synergies between SOG and Dr. Joyce Lim – SOG is developing a stretch mark cream with Dr. Joyce Lim. Other formulation possibilities include a cream for pigmentation, safe for use during pregnancy. Management noted that it would prefer to buy than build, when it ventures into unchartered waters. There are two methods, with the recruitment method preferred. Recruitment of a consultant specialist from a restructured hospital Recruitment not just shortens the latency period but also enables the Group to tap onto the target company’s existing patient pool. Its historical recruitment deals (see Figure 26) were completed through issuance of new SOG shares. The Group targets latent period to be less than the market expectation of 1 year, i.e. to break even by the 4th month and to turn profitable by the 6th month post acquisition. In the past, the Group has consistently managed to keeps latent period to 8 months. Figure 26: Latent S/N Specialist Period 1 Dr. Natalie Chua 0 month 2 Dr. Cindy Pang 4 months 3 Dr. Radhika Lakshmana 8 months Source: Company
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Acquisition strategy Management shared that it does not have specific acquisition guidelines to adhere to, and maintains flexibility in the method of financing. As mentioned earlier, SOG does not have any debt, and it is cash-rich. There is also no specific range of P/E ratio, as long as it is capped at SOG’s P/E ratio at the point of acquisition. So far, only Dr. Joyce Lim Skin and Laser Clinic is acquired 53% by cash and 47% by shares, at an implied P/E ratio of c.11.5x. At SOG’s current P/E ratio of 30.7x, we will monitor the implied P/E ratio for subsequent deals, if the Group runs the risk of overpaying.
Forecast Assumptions 1. Total live birth and SOG’s market share We forecasted a 1% growth in Singapore’s total live birth where private sector hospitals continue to accounts for 60% of the total number of babies delivered. We assumed SOG to recruit an additional O&G specialist each year for FY16F and FY17, bring the number of SOG specialist to 6 and 7 respectively. As O&G services account for the largest portion of its revenue, the top line growth is expected to grow along with the increasing SOG specialists and number of deliveries. Figure 27: SG Total Live Birth and SOG's Market Share
No. of babies delivered by SOG %y-y No. of babies delivered by SOG 2,500 %y-y SG Live Birth 80%
2,000 60% 38% 1,500 40% 19% 14% 1,000 12% 20%
500 -7% 0% 6% 0% 1% 1% -7% 0 -20% FY12 FY13 FY14 FY15 FY16F FY17F
Source: CEIC, Company, PSR est. Figure 28: Revenue by Segment and Number of O&G Specialists
Obstetrics & Gynaecology 25,000 8 Cancer-related 7 7 Dermatology 6 20,000 O&G Specialist 6 5 5 15,000 5 4 3 3 10,000 3 2 5,000 1 0 0 FY12 FY13 FY14 FY15 FY16F FY17F
Source: Company, PSR est.
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2. Margins The Group improved its gross margin in FY14 via central procurement process and cost effectiveness program. We think that gross margin is sustainable at c.89% over FY16- 17F. Figure 29: Margins
Gross Net profit 100% 89% 89% 89% 89% 85% 86% 80%
60% 37% 36% 40% 31% 33% 31% 31%
20%
0% FY12 FY13 FY14 FY15 FY16F FY17F
Source: Company, PSR est.
3. Cost Employee costs makes up the largest portion of its operating expenses, at 68% to 74% of total expenses over the last four years. Nonetheless, SOG managed to retain employee costs below 40% of total revenue. Management shared that, this only forms one-third of their wages, as the remaining two-third are derived from the Group’s dividend. We think that the high employee costs are inevitable, as the Group is required to offer an attractive remuneration package to incentivise and motivate its group of specialist medical practitioners, as well as to attract and retain talents. The second highest expenses are administrative expenses, followed by operating lease costs. Figure 30: Costs % Revenue Employee costs % revenue 50% Other expense % of revenue Depreciation % revenue 40%
30%
20%
10%
0% FY12 FY13 FY14 FY15 FY16F FY17F
Source: Company, PSR est.
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Figure 31: Talent Crunch within SE Asia Nurses and Midwives per 1000 People (last updated) 12 Source: CEIC, PSR 10
8
6
4
2
0 US JP SG CN ID MY TH
4. Working Capital Cycle We expect SOG to revert its working capital cycle structure as per FY14 structure in FY16-17F. Usually, revenue is collected directly from the patients. Only under exceptional cases where the Group may leverage on the hospitals to collect delivery fees (not preferred as it will lead to slightly longer days of receivables). Revenue is recognised upon the completion of services rendered with the exception of antenatal packages. Antenatal packages are collected upfront and the revenue is recognised on a monthly basis over the patient’s remaining pregnancy periods and up to the delivery of the child. We assume no change in (i) patients’ payment structure, (ii) the Group’s inventory management, and (iii) credit terms with its suppliers and lessors. Figure 32: Working Capital Cycle
Inventory days Receivable days Payable days
65 60 55 50 45 40 35 30 FY12 FY13 FY14 FY15 FY16F FY17F
Source: Company, PSR est. 5. Dividend Policy According to the IPO Prospectus, the Group does not have a fixed dividend policy, but has a 90% payout target. It made its maiden dividend of S$0.02 per share in FY15, which implied a 75.9% payout ratio. Considering its active recruitment drive (two specialists in FY16, and Paediatrics in FY17), we expect a higher setup costs over FY16-17F. Cash rich, we expect SOG to continue to fund its capex internally and payout at least 80% of its earnings and to move towards the targeted 90% payout ratio.
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Figure 33: EPS and Dividend
EPS (Cents) DPS (Cents) 5.0 Dividend payout ratio 100% 4.5 80.0% 80.0% 75.9% 4.0 80% 3.5 3.0 60% 2.5 2.0 40% 1.5 1.0 20% 0.5 0.0 0% FY14 FY15 FY16F FY17F
Source: Company, PSR est.
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Valuation We are positive on the stock for its 1) expansion plan backed by strong financials and clean balance sheet, and 2) growing customer base underpinned by favourable macro environment and experienced specialist team. SOG currently trades at a 30.7x FY15 PER, which is c.12% premium to its Singapore healthcare services peers’ 27.5x. We applied a 20% discount to its peers’ average FY16F PER, considering SOG’s smaller operating scale and higher liquidity risk (Catalist listed). The derived 28.2x forward PER is close to its average YTD historical PER at 28.6x. We initiate coverage on SOG with a “Buy” rating with a target price of S$1.00 based on estimated 3.55 cents FY16 EPS. This implies an upside of 25.4% (with dividends) from its last closing price. Figure 34: Peer Comparison and Valuation Item EPS FY16F 3.55 Simple Average P/E FY16F (Excl. SOG) 35.3 20% discount due to liquidity risk 20% Actual P/E multiple used 28.2 Target price (S$) 1.00 FY16F dividends 0.03 Closing price 0.82 Potential upside 25.4%
Bloomberg Mkt Cap EV EV/EBITDA EV/EBITDA EV/EBITDA P/E P/E P/E Company Ticker (SGD mn) (SGD mn) TTM FY1 FY2 TTM FY1 FY2 Net D/E (%) ROA (%) ROE (%) P/B Singapore O&G Ltd SOG SP 195 171 21.6 16.5 18.9 30.7 17.9 23.1 Net Cash 25.1 29.8 7.4 Singapore IHH Healthcare Bhd IHH SP 17,609 19,839 28.8 23.4 20.5 N/A 50.0 41.1 19.5 3.1 4.8 N/A Raffles Medical Group Ltd RFMD SP 2,701 2,640 27.1 25.2 22.0 38.4 37.1 33.2 Net Cash 9.0 11.9 4.3 Talkmed Group Ltd TKMED SP 624 563 10.5 12.1 11.6 17.5 16.1 15.6 Net Cash 47.0 57.2 9.6 Q&M Dental Group Singapore Ltd QNM SP 578 608 27.7 20.1 16.9 44.0 36.3 30.2 13.5 6.3 13.5 6.3 Cordlife Group Ltd CLGL SP 333 259 41.6 24.9 20.9 9.4 49.4 40.2 61.8 19.4 44.3 2.6 ISEC Healthcare Ltd ISEC SP 157 132 15.6 11.3 9.7 43.2 22.9 20.0 Net Cash 5.3 5.8 3.0 International Healthway Corp IHC SP 91 436 10.4 N/A N/A 12.6 N/A N/A 154.2 1.1 3.3 0.4 Healthway Medical Corp Ltd HMED SP 78 94 23.0 N/A N/A N/A N/A N/A 8.2 0.7 0.9 0.4 Singapore Medical Group Ltd SMG SP 42 36 38.7 N/A N/A N/A N/A N/A Net Cash -2.3 -4.7 4.1 AsiaMedic Ltd AMAT SP 25 24 8.0 N/A N/A N/A N/A N/A Net Cash -8.2 -13.6 1.8 Simple Average (Excl. SOG) 23.1 19.5 16.9 27.5 35.3 30.0 51.4 8.1 12.3 3.6 Source: Bloomberg, Phillip Securities Research (Singapore) Estimates Figure 35: Regional Peer Comparison Bloomberg Mkt Cap EV EV/EBITDA EV/EBITDA EV/EBITDA P/E P/E P/E Company Ticker (SGD mn) (SGD mn) TTM FY1 FY2 TTM FY1 FY2 Net D/E (%) ROA (%) ROE (%) P/B India Apollo Hospitals Enterprise Ltd APHS IN 3,657 4,093 26.4 21.1 17.5 55.0 43.6 33.3 56.0 4.7 10.0 5.3 Narayana Hrudayalaya Ltd NARH IN 1,307 1,349 34.3 27.1 22.1 334.8 109.7 66.3 23.5 1.4 2.3 7.3 Hong Kong Phoenix Healthcare Group Co. Ltd 1515 HK 1,449 1,253 19.4 15.0 11.7 42.4 24.9 21.3 Net Cash 7.8 9.9 4.0 Harmonicare Medical Holdings 1509 HK 663 396 22.1 7.8 6.6 26.6 19.2 17.4 Net Cash 10.5 N/A 2.3 Thailand Bangkok Dusit Medical Services Public Co. Ltd BDMS TB 14,130 15,158 26.9 26.4 23.3 45.8 41.2 35.5 43.5 8.2 15.3 6.6 Bumrungrad Hospital Public Co Ltd BH TB 5,097 4,978 28.1 22.3 19.8 38.7 36.0 31.9 Net Cash 16.0 27.0 9.7 Malaysia KPJ Healthcare Bhd KPJ MK 1,477 1,909 16.3 14.5 12.9 33.5 30.3 25.9 70.8 3.6 9.4 3.0 IHH Healthcare Bhd IHH MK 17,348 19,577 28.8 23.1 20.2 52.7 49.2 40.5 19.5 3.1 4.8 2.4 Indonesia Siloam International Hospitals Tbk SILO IJ 1,249 1,234 16.2 18.8 15.0 162.0 139.4 91.2 Net Cash 2.5 4.4 6.9 Mitra Keluarga Karyasehat Tbk PT MIKA IJ 3,791 3,534 47.1 40.9 34.3 66.2 56.1 49.7 Net Cash 19.3 23.1 11.7 Sarana Meditama Metropolitan Tbk SAME IJ 338 373 21.4 19.9 15.2 49.5 64.8 45.2 32.2 7.7 13.9 4.4 Australia Healthscope Ltd HSO AU 4,794 6,007 14.4 14.6 13.1 25.0 25.3 22.4 41.6 4.5 7.7 2.0 Simple Average (Excl. SOG) 24.2 20.5 17.4 61.0 47.3 36.7 45.4 7.8 12.0 4.7 Source: Bloomberg, Phillip Securities Research (Singapore) Estimates
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Figure 36: Historical PER 32 YTD Historical PER 31
30 +1 Std. Dev.
29 Average
28 -1 Std. Dev. 27
26 Source: Bloomberg, PSR est. 25 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16
Figure 37: Historical performance relative to various indices
1-Yr Historical Performance 0.85 Singapore O&G
0.75 STI Healthcare Index 0.65
STI 0.55
0.45 Catalist Index Source: Bloomberg, PSR est. 0.35 Jun-15 Sep-15 Dec-15 Mar-16
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Risks 1. Competition There are significant barriers to entry to the private O&G sector, as it takes approximately 6 years to become a fully registered doctor and a further 6 years to be trained and be accredited as an O&G specialist medical practitioner. In addition, a qualified O&G specialist medical practitioner must build up sufficient goodwill and clientele before starting a private practice. (a) Domestic (particularly from the public hospitals) SOG sees KK Women’s and Children’s Hospital, which also specialises in Women and Children healthcare services, as its main competitor. (b) Regional (particularly from neighbouring countries) From 1st Mar-10, under certain terms and conditions set by Ministry of Health (MOH), Singapore residents (Singaporeans and Singapore PRs) will be able to use their Medisave to pay for their medical expenses incurred in Malaysia. The scheme started with two providers, namely Health Management International (HMI) and Parkway Holdings Pte Ltd. According to MOH, from 2010 to 2013, there were about 580 Medisave claims for overseas electives, amounting to S$1.5 million. The majority of the claims were for deliveries. Singaporeans and Singapore PRs who opt to deliver in Malaysia could expect savings of up to 50%, due to the stronger SGD against MYR. However, parents who want their new-borns to be Singapore citizens will have to bear the inconvenience by visiting the Singapore High Commission in Kuala Lumpur or the Singapore Consulate-General in Johor Bahru to register the birth of their babies. 2. Lease renewal and unable to obtain a suitable location at cost effective rental rates. All premises of its medical clinics are leased, leading to risk of relocation, increase in rental or not being able to renew the leases on favourable terms and conditions. 3. Key personnel risks, particularly on specialist medical practitioners. According to the Group, the services of Dr. Lee Keen Whye, Dr. Heng Tung Lan, Dr. Beh Suan Tiong and Dr. Choo Wan Ling are integral to the development and business of the Group. Together, they contributed c.90% and c.93% of its FY13 and FY14 revenue, respectively. Any loss of the services of any of its key specialist medical practitioners without a suitable and timely replacement could materially and adversely affect the business, financial condition and results of its operations. Also, facing talent crunch in the healthcare sector, there is risk where the Group could not attract and retain skilled and qualified healthcare professionals. 4. Dilution in shareholders’ equity and shareholdings. Additional funds raised through issuance of new shares for future growth will dilute shareholders’ equity interests. Also, future sale post moratorium or issuance of a large number of shares may have a downward pressure on share price. 5. Other risks: (a) Execution risks – relatively new brand name (incorporated on Jan-11). (b) Competition laws and regulations in Singapore may limit growth and subject the Group to anti-trust and merger control. (c) Liquidity risk – Catalist listed. (d) Change of regulations and licensing requirements. (e) Outbreaks, occurrences of epidemics and pandemics may drive down demand (e.g. Zika virus).
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SWOT Analysis Strengths Weakness . High barrier to new entrant . Key personnel risks . Supported by a team of strong and experienced specialist . Single country-dependent medical practitioners . Relatively new company, shorter track record of . Clinics strategically located and flexibility to choose management and implementation strategy hospitals . Strong financial position and clean balance sheet . Ability to pass on cost to customers . Diversified portfolio and industry resiliency Opportunities Threats . New clinics, new recruits, new business segment . Domestic and regional competition . Supportive government’s policy to boost fertility . Unable to secure strategic locations for medical clinics at . Increasing cancer notifications cost effective rental rates . Synergies with Dr. Joyce Lim’s business
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APPENDIX Company Background Singapore O&G (SOG) has a team of specialist medical practitioners in women’s healthcare with a long and established tract record in the Obstetrics and Gynaecology (“O&G”) field. SOG focuses on pregnancy care and delivery, the female reproductive system, and gynaecological and breast cancer, dermatology and skin care. Figure 38: Company’s history Year Corporate Development 6-Jan-11 Company incorporated. Founded by Dr. Lee Keen Whye, Dr. Heng Tung Land, and Dr. Victor 26-Aug-11 Renamed to Singapore O&G Pte Ltd. May & Dec-12 Set up two clinics, SOG Breast Surgicare (now known as SOG-Radhika Breast & General Surgicare) and SOG Clinic for Women May-13 Set up a new branch of Heng Clinic for Women at Cassia Crescent 1-Aug-13 Dr. Natalie Chua was employed as an O&G specialist medical practitioner 11-Feb-14 As part of the Group restructuring, K W Lee Clinic and Heng Clinic for Women became part of the Group. Engaged both Dr. Lee Keen Whye and Dr. Heng Tung Lan as O&G specialist medical practitioners. Beh's Clinic for Women and ST Surgery became part of the Group. Dr. Beh Suan Tiong joined the team of O&G specialist medical practitioners. Choo Wan Ling Women's Clinic became part of the Group. Dr. Choo Wan Ling joined the team of O&G specialist medical practitioners. 22-Sep-14 Incorporated SOG-Radhika Breast & General Surgicare and engaged Dr. Radhika 20-Oct-14 Incorporated SOG-Cindy Pang Clinic and engaged Dr. Cindy Pang. 18-May-15 Converted into a public company and changed its name to Singapore O&G Ltd. 4-Jun-15 Marks its trading debut on SGX 31-Dec-15 Completion of the proposed acquisition of the business and medical practices of JL Laser & Surgery Centre Pte. Ltd., JL Esthetic Research Centre Pte. Ltd., and JL Dermatology Pte. Ltd. Dr. Joyce Lim joins the Group. 29-Jan-16 Incorporated SOG-Natalie Chua Clinic for Women. Incorporated SOG-SK Lim Breast & General Surgicare and engaged Dr. Lim Siew Kuan. 8-Apr-16 Incorporated SOG-SC Hong Clinic for Women and engaged Dr. Hong Sze Ching.
Source: Company
Figure 39: Company’s business
Source: Company FY15 Annual Report
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Figure 40: 11 clinics, 7 Locations by Jul-16
Source: Company’s Presentation Slides * Clinic at Mount Alvernia Hospital is expected to commence in Jul-16 Figure 41: Footprint in SG FY11 FY12 FY13 FY14 FY15 Number of clinics 2 4 4 8 9 Location in SG 2 2 3 5 6 Staff strength 19 22 37 39 O&G specialist 2 3 3 5 5 Women cancer specialist 1 0 2 2 Skin specialist 0 0 0 1 Clinic staff 12 15 19 22 Finance, admin and marketing personnel 3 4 11 9 Source: Company, PSR est.
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Group Structure Figure 42: Group Structure as at 31 Dec-15 Note: On 29 Jan-16, SOG incorporated two wholly owned subsidiaries, SOG- Natalie Chua Clinic for Women Pte. Ltd., and SOG-SK Lim Breast & General Surgicare Pte. Ltd. On 8 Apr-16, SOG incorporated a wholly-owned subsidiary, SOG-SC Hong Clinic for Women Pte. Ltd.
Source: Company FY15 Annual Report
Board of Directors The Board adopted a policy of rotating the Chairmanship every two years so as to engage the Executive Directors, to ensure independence and to not to over burden a single Executive Director. Dr. Heng Tung Lan took over as Executive Chairwoman for the next two years, in the recent AGM in 8th Apr-16. After two years, it would then be followed by Dr. Beh Suan Tiong. Position Age Working and Business Experience Dr. Lee Keen Whye Executive 61 Graduated from the National University of Singapore qualifying with a MBBS, and Chairman subsequently specialised in O&G. Awarded both with a FRCOG from the Royal College of Obstetricians and Gynaecologists, United Kingdom, and a FAMS from the National University of Singapore. The Chairman of the Minimally Invasive Surgery Centre, Gleneagles Hospital (2001-2008) The President of the OGSS (2003-2005) The Chairman of Surgeons International Holdings Pte Ltd (2005-2010) Founder member of the Asia-Pacific Association of Gynaecological Endoscopists (APAGE) Associate of the Laser Vaginal Institute of Los Angeles, USA Awarded the Singapore Armed Forces HQ Army Medical Services (National Servicemen of the Year) Award in 1996 Awarded the Benjamin Henry Sheares Gold Medal by the OGSS in 2003
Dr. Heng Tung Lan Executive 58 The leading Consultant Obstetrician and Gynaecologist practicing in Parkway East Director Medical Centre. Graduated from the National University of Singapore qualifying with a Bachelor’s degree in Medicine and Surgery, and subsequently specialised in O&G. Awarded a MMed (O&G) and was admitted to the Academy of Medicine, Singapore. Established private practice in Sep-1993 Delivered more than 755 babies in 2014, and 803 babies in 2015
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Dr. Beh Suan Tiong Executive 52 Graduated from the National University of Singapore in 1987 with a MBBS, and Director subsequently specialised in women’s healthcare. A Member of the Royal College of Obstetricians and Gynaecologists, United Kingdom Awarded a FAMS from the Academy of Medicine, Singapore A Consultant Obstetrician and Gynaecologist at the Thomson Medical Centre The first doctor recipient of the KK Service from the Heart Award The past President of the OGSS The past Treasurer of the College of O&G, Singapore The Chairman of the Operating Room and ICU Committee of Thomson Medical Centre A member of the medical advisory board of Thomson Medical Centre The Chairman of the Gynaecology endoscopy Subsection Part-time Senior Consultant of the Minimally Invasive Surgery Unit in the Department of Obstetrics and Gynaecology of KK Women’s and Children’s Hospital.
Mr. Christopher Lead 56 A partner and co-founder of ACH Investments Pte Ltd Chong Meng Tak Independent Holds a Bachelor of Science degree in Economics (1st Honours) from the University Director College of Wales and a Master of Business Administration degree from the London Business School A member of the Institute of Chartered Accountants of Scotland, a Fellow of the Australian Institute of CPAs, a Fellow of the Hong Kong Institute of Certified Public Accountants, a Fellow of the Singapore Institute of Directors, a Fellow of the Australian Institute of Company Directors and a master Stockbroker of the Securities and Derivatives Industry Association of Australia Has significant experience as a director of listed companies; has significant experience in capital markets, securities law, corporate governance and corporate affairs Was an Executive Director of UOB Kay Hian Holdings Ltd Was a multi-award winning analyst and the Managing Director of HSBC Securities (Singapore) Pte Ltd An independent director of several listed companies, including ASL Marine Holdings Ltd and Ying Li International Real Estate Limited on SGX-ST, and GLG Corp Ltd and Koon Holdings Limited on the ASX A director/trustee of several private companies, trusts and international funds
Mr. Chan Heng Independent 65 Has more than 30 years of experience in banking Toong Director Vice President of Citibank N.A. (1984-1988) Vice President of American Express Bank (NY) (1988-1989) Vice President of the corporate banking division of Overseas Union Bank Limited (1989) General Manager and Chief Executive Officer of Overseas Union Bank Limited Singapore (Canada) (1990-1995) Vice President of the corporate finance division in Overseas Union Bank Limited (1995) Director of United Overseas Bank Asia Limited (2002) Managing Director of the investment banking division (corporate finance) in UOB (2008-2009) Head of Investment Banking in HK Bank (2010-2013) Has been involved in the initial public offerings of more than 30 local and foreign companies on the SGX-ST
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Mr. Chooi Yee- Independent 53 Has more than 25 years in the airlines and tourism industry Choong Director Methods Analyst (1984) and Systems Analyst (1986) in Singapore Airlines Limited Marketing Executive (1990) and Vice President (Commercial) (2000) of Silk Air (Singapore) Private Limited Head of Commercial of Jetstar Asia Airways Pte Ltd (2004) Regional Director of Indonesia, Philippines, Australia, New Zealand, Brunei and Fiji of Singapore Tourism Board (2009) Chief Planning Officer of Jetstar Airways (2011) Chief Commercial Officer (2012) and the Chief Executive Officer of TransAsia Airways Currently the Chief Executive Officer of Myanmar Airways International Co., Ltd. (since 2015)
Source: Company
Key Management Position Age Working and Business Experience Dr. Ng Koon Keng Chief Executive 55 The Group’s CEO since Aug-11 Officer Holds a First Class Honours degree (BMSc.) in Pharmacology and obtained medical degree from the University of Dundee (UK) Has business development, management, marketing and publishing experience. Started A-Vic Enterprises Pte. Ltd. CEO of Surgeons International Holdings Pte. Ltd. Served as a Medical Advisor to Red Carpet Medical Director of the Orchard Surgery Centre Pte. Ltd. CEO of Asiamedic Limited
Ms. Heng Tong Chief 60 The Group’s CAO since Nov-13 Bwee Administrative Holds a degree in Accountancy from the National University of Singapore Officer Internal Auditor in the People’s Association (1977-1981) External Auditor in Foo Kon & Tan (now known as Foo Kon Tam LLP) (1981-1984) Audit Manager at Harry Tan & Partners (1984-1989) Director at Transview Decor Pte Ltd (1989-2013) Director at A-Plan Management Pte Ltd (1990-2013) Director and the Finance Manager at Heng Clinic for Women (Mar-05)
Mr. Eric Choo Financial 35 The Group’s Financial Controller since Jun-14 Controller Holds a Bachelor Business (Accountancy) degree from the Royal Melbourne Institute of Technology A non-practising member of the Institute of Singapore Chartered Accountants and CPA Australia Has over 13 years of experience in the accounting and finance sector Accountant with Pacific Healthcare Holdings Ltd (2002) Audit Senior Manager with KPMG Singapore Has over 9 years of audit and assurance experience as an auditor in Singapore and the United States (provided audit and assurance services to public companies listed on the SGX-ST and stock exchanges in the USA, multi-national corporations and government linked corporations in Singapore)
Source: Company
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Financials
Income Statement Balance Sheet Y/E Dec, SGD mn FY13 FY14 FY15 FY16F FY17F Y/E Dec, SGD mn FY13 FY14 FY15 FY16F FY17F Revenue 8.6 13.5 16.4 27.3 31.3 ASSETS EBITDA 3.8 5.2 6.3 10.3 11.9 PPE 0.4 0.6 0.7 0.8 1.0 Depreciation & Amortisation (0.1) (0.2) (0.2) (0.4) (0.5) Others 0.0 0.8 1.0 1.0 1.0 EBIT 3.7 5.0 6.1 9.9 11.4 Total non-current assets 0.4 1.4 1.7 1.8 2.0 Net Finance Inc/(Exp) 0.0 (0.0) 0.1 0.3 0.3 Accounts receivables 1.4 1.9 1.5 3.2 3.7 Profit before tax 3.7 5.0 6.2 10.2 11.7 Cash 6.4 11.3 24.2 24.7 26.4 Taxation (0.6) (0.8) (0.8) (1.7) (2.0) Inventories 0.2 0.2 0.3 0.4 0.5 Net profit before NCI 3.1 4.2 5.3 8.5 9.7 Others 0.0 0.0 0.0 0.0 0.0 Non-controlling interest 0.0 0.0 0.0 0.0 0.0 Total current assets 8.0 13.4 26.0 28.4 30.6 Net profit, reported 3.1 4.2 5.3 8.5 9.7 Total Assets 8.4 14.9 27.6 30.2 32.5
LIABILITIES Accounts payables 0.8 1.7 1.6 2.5 2.9 Short term loans 0.0 0.0 0.0 0.0 0.0 Others 0.9 1.2 1.9 1.9 1.9 Total current liabilities 1.7 3.0 3.5 4.4 4.8 Long term loans 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.1 0.1 0.1 Total non-current liabilities 0.0 0.0 0.1 0.1 0.1 Per share data (SGD Cents) Total Liabilities 1.7 3.0 3.6 4.5 4.9 Y/E Dec FY13 FY14 FY15 FY16F FY17F EPS, reported 2.79 2.67 3.55 4.06 EQUITY DPS 0.00 2.03 2.84 3.25 Non-controlling interests 0.0 0.0 0.0 0.0 0.0 BVPS 7.79 12.02 10.78 11.59 Shareholder Equity 6.8 11.9 24.0 25.7 27.6
Cash Flow Valuation Ratios Y/E Dec, SGD mn FY13 FY14 FY15 FY16F FY17F Y/E Dec FY13 FY14 FY15 FY16F FY17F CFO P/E (X), adj. 12.6 17.9 23.1 20.2 Profit before tax 3.7 5.0 6.2 10.2 11.7 P/B (X) 4.5 4.0 7.6 7.1 Depreciation & Amortisation 0.1 0.2 0.2 0.4 0.5 EV/EBITDA (X), adj. (0.0) 11.7 16.5 18.9 16.5 WC changes 0.0 0.1 0.2 (1.0) (0.2) Dividend Yield (%) 0.0% 0.0% 4.2% 3.5% 4.0% Net finance Exp/(Inc) (0.0) 0.0 (0.1) (0.3) (0.3) Growth & Margins (%) Tax paid 0.0 (0.5) (0.2) (1.7) (2.0) Growth Others (0.5) 0.1 0.1 0.0 0.0 Revenue 6.5% 56.8% 21.2% 66.3% 14.7% Cashflow from ops 3.4 4.9 6.4 7.6 9.7 EBITDA 9.7% 35.9% 20.4% 64.3% 14.7% CFI EBIT 8.6% 35.5% 20.1% 64.1% 14.7% CAPEX, net 0.0 (0.4) (0.3) (0.5) (0.6) Net profit, adj. 4.0% 36.1% 25.7% 58.6% 14.3% Others (0.2) 2.5 0.0 0.3 0.3 Margins Cashflow from investments (0.2) 2.1 (0.3) (0.3) (0.4) EBITDA margin 44.5% 38.6% 38.4% 37.9% 37.9% CFF EBIT margin 43.0% 37.2% 36.9% 36.4% 36.4% Share issuance, net 0.0 0.0 10.2 0.0 0.0 Net profit margin 36.1% 31.4% 32.5% 31.0% 30.9% Loans, net of repayments 0.0 (0.0) 0.0 0.0 0.0 Key Ratios Dividends 0.0 (2.2) (3.4) (6.8) (7.7) ROE (%) 53.7% 45.6% 29.8% 34.1% 36.3% Others (1.3) (0.0) 0.0 0.0 0.0 ROA (%) 43.7% 36.5% 25.1% 29.3% 30.9% Cashflow from financing (1.3) (2.2) 6.8 (6.8) (7.7) Net change in cash 1.8 4.9 12.9 0.5 1.6 Net Debt / (Cash) (6.4) (11.3) (24.2) (24.7) (26.4) CCE, end 6.4 11.3 24.2 24.7 26.4 Net Gearing (X) Net Cash Net Cash Net Cash Net Cash Net Cash Source: Company, Phillip Securities Research (Singapore) Estimates *Forward multiples & yields based on current market price; historical multiples & yields based on historical market price.
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SINGAPORE O&G LTD. INITIATION
Ratings History
1.20 Market Price Target Price 1.10 1.00 0.90 0.80 0.70 0.60 Source: Bloomberg, PSR
0.50
Jun-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Sep-15
1 2 3 4 5
PSR Rating System Total Returns Recommendation Rating > +20% Buy 1 +5% to +20% Accumulate 2 -5% to +5% Neutral 3 -5% to -20% Reduce 4 <-20% Sell 5 Remarks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation
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