Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Asia’s leading multi-asset exchange

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

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<p><em><strong>These equity research reports are not written by the SGX</strong>.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
<p>RESULTS UPDATE</p>
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<h2>Singapore Medical Group</h2>
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<h3>Don’t mistake this diamond for a rock</h3>
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<p>• <strong>Undervalued and underappreciated, maintain OUTPERFORM and TP of S$0.34.</strong> Considering its geographical diversification, a wider network of clinics, doctors and specialists, and its strong net cash position, we think SMG remains highly undervalued, trading at less than 10x FY21F P/E in comparison to its peers.</p>
<p>• <strong>2H20 to do better.</strong> While 1H20 NPAT made up less than 50% of our forecasts, we think it is fair given the lack of contribution from medical tourism and a highly impacted Diagnostics &amp; Aesthetics segment. We expect 2H20 to see a rebound from pent-up demand for elective procedures and aesthetics, despite a slowing economy.</p>
<p>• <strong>New clinics, new doctors.</strong> SMG’s continues to leverage on increasing demand for private healthcare, with a new Women’s Health and Paediatrics clinic set to open by the end of the year, along with a slew of new doctors.</p>
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<p><strong>1H20 review</strong>. Revenue declined by just 12.8% YoY, considering the impact of the deferment of non-essential medical services and also the absence of medical tourism, which usually makes up about 15-20% of the Group’s revenue. However, NPAT plunged by close to 50%, largely due to fixed costs such as doctor salaries and equipment maintenance. That said, SMG continues to generate strong positive cash flows, and maintained a net cash position of S$11.2mn as of 30 June 2020.</p>
<p>Its overseas joint ventures and associates have also been affected, especially its SMG Ciputra Eye Clinic in Jakarta, Indonesia, since most LASIK and ophthalmology appointments are considered to be non-essential and have been deferred.</p>
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<p><strong>2H20 outlook.</strong> All deferred services from the months of April-June during the circuit breaker period is expected to be completed by year end. Also, since the easing of restrictions for non-essential medical services, SMG has seen pent-up demand across all segments of the business for elective procedures, especially in its Diagnostics &amp; Aesthetics segment. Management has also confirmed that space and additional safety measures and procedures are no constraint, and the increased patient load in the second half will not be an issue for the Group’s clinics.</p>
<p>Further, while we note that Singapore’s slowing economy may affect patients’ willingness to spend on elective or aesthetic procedures, management has seen no downtrend in average patient spending since the reopening of its clinics, lending confidence to our 2H20 outlook. Some of the Group’s patients also contribute to multiple segments of the business due to the nature of SMG’s inter-clinic referrals, and thus we expect revenue and margins to improve going forward.</p>
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These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.
RESULTS UPDATE




Singapore Medical Group



Don’t mistake this diamond for a rock




• Undervalued and underappreciated, maintain OUTPERFORM and TP of S$0.34. Considering its geographical diversification, a wider network of clinics, doctors and specialists, and its strong net cash position, we think SMG remains highly undervalued, trading at less than 10x FY21F P/E in comparison to its peers.
• 2H20 to do better. While 1H20 NPAT made up less than 50% of our forecasts, we think it is fair given the lack of contribution from medical tourism and a highly impacted Diagnostics &amp; Aesthetics segment. We expect 2H20 to see a rebound from pent-up demand for elective procedures and aesthetics, despite a slowing economy.
• New clinics, new doctors. SMG’s continues to leverage on increasing demand for private healthcare, with a new Women’s Health and Paediatrics clinic set to open by the end of the year, along with a slew of new doctors.




1H20 review. Revenue declined by just 12.8% YoY, considering the impact of the deferment of non-essential medical services and also the absence of medical tourism, which usually makes up about 15-20% of the Group’s revenue. However, NPAT plunged by close to 50%, largely due to fixed costs such as doctor salaries and equipment maintenance. That said, SMG continues to generate strong positive cash flows, and maintained a net cash position of S$11.2mn as of 30 June 2020.
Its overseas joint ventures and associates have also been affected, especially its SMG Ciputra Eye Clinic in Jakarta, Indonesia, since most LASIK and ophthalmology appointments are considered to be non-essential and have been deferred.



2H20 outlook. All deferred services from the months of April-June during the circuit breaker period is expected to be completed by year end. Also, since the easing of restrictions for non-essential medical services, SMG has seen pent-up demand across all segments of the business for elective procedures, especially in its Diagnostics &amp; Aesthetics segment. Management has also confirmed that space and additional safety measures and procedures are no constraint, and the increased patient load in the second half will not be an issue for the Group’s clinics.
Further, while we note that Singapore’s slowing economy may affect patients’ willingness to spend on elective or aesthetic procedures, management has seen no downtrend in average patient spending since the reopening of its clinics, lending confidence to our 2H20 outlook. Some of the Group’s patients also contribute to multiple segments of the business due to the nature of SMG’s inter-clinic referrals, and thus we expect revenue and margins to improve going forward.




















Non-SGX Report: Singapore Medical Group: Don’t Mistake This Diamond for a Rock