SMG's talks with third party lapse; UOB Kay Hian still rooting for stock

Singapore

HEALTHCARE services provider Singapore Medical Group (SMG) is no longer in talks with a third party regarding a possible transaction involving the company's shares.

But UOB Kay Hian (UOBKH) is still excited about prospects for the stock, noting SMG's "stellar growth prospects" in terms of "organic clinic growth, expansion overseas and telehealth".

These are "under-appreciated by the market", UOBKH said.

SMG saw a significant decline in the price of its shares on Wednesday afternoon. Trading on the stock was halted later that day.

On Thursday morning, SMG announced that the company and a third party it was in discussions with "have decided not to proceed with further exploration of the transaction at this stage".

SMG had first notified investors about the talks in December, following a query about unusual trading in its shares.

The counter fell as low as 30.5 Singapore cents on Thursday, after the latest announcement was made, from 34.5 Singapore cents before the halt was called.

They recovered on Friday, however, to end at 34.5 Singapore cents, up 6.2 per cent or two cents.

UOBKH is maintaining its "buy" call on SMG, with an unchanged target price of 46 Singapore cents.

In a Friday report, 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.

Mr Teng said that while a transaction could have unlocked value for the group, SMG is currently under-valued, given the recovery in domestic patient loads.

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, where its aesthetic clinic can tap discretionary spending from the growing middle class and expatriate market, he said he believes SMG's growth plans are "unmatched by peers".

He also noted that SMG has tapped telemedicine - a market that has grown thanks to the Covid-19 pandemic.

UOBKH is forecasting earnings of S$13.3 million for SMG in FY2021. This implies a forward price-to-earnings (P/E) ratio of roughly 12 times for the stock, which UOBKH estimates is one standard deviation below its five-year average P/E and is also a discount to its peers.