Brokers' take: No more deal for SMG, but healthcare provider still in growth mode

UOB Kay Hian (UOBKH) is maintaining a "buy" call on Singapore Medical Group (SMG) with an unchanged target price of S$0.46.

In a Friday report, the research house said it remained upbeat on SMG's "stellar growth prospects", in terms of "organic clinic growth, expansion overseas and telehealth, which are underappreciated by the market".

This comes after SMG announced that it will no longer be proceeding with a transaction of the group's shares on Thursday. In December last year, the group said that it was in preliminary discussions with a third party regarding a transaction involving SMG's shares.

The group will remain open to exploring various avenues to enhance shareholder value, SMG said in its Thursday bourse filing.

Despite the effects of Covid-19, UOBKH analyst Lucas Teng noted that the company was still in growth mode, and that elective medical procedures remain on the high. Furthermore, the group has a net cash position of S$15.8 million and continues to explore overseas mergers and acquisitions opportunities, he said.

While a transaction could have unlocked value for the group, Mr Teng said that SMG's discounted market valuation is unwarranted given the recovery seen from domestic patient load.

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The group trades at an "attractive valuation" with a "proven track record of organic growth", he added.

With SMG's overseas expansion into markets such as Vietnam which taps discretionary spending from the growing middle class and expatriate market, Mr Teng highlights that SMG's growth plans were underappreciated by the market.

Further, SMG has also tapped telemedicine, which saw a boost during the Covid-19 pandemic as more patients grew accustomed to seeking out their doctors online, the analyst said.

He cited "recovery in patient load", "earnings-accretive mergers and acquisitions" and a "stronger traction in high-growth markets, such as Vietnam" to be catalysts of SMG's share price.

The research house is maintaining the "buy" call with an unchanged price to earnings-based target price of S$0.46.

Currently, the stock is trading at 12 times its 2021 earnings, which is about one standard deviation below its five-year average price-to-earnings (PE) ratio, and a discount to peers' average PE.

The counter closed at 34.5 Singapore cents on Friday, up 6.2 per cent or two cents.