SINGAPORE MEDICAL GROUP

SINGAPORE MEDICAL GROUP| BUY

TARGET PRICE: $0.74

MARCH 19 CLOSE: $0.515

UOB Kay Hian, March 19

Singapore Medical Group (SMG) has made a big step into expanding its presence in the highly lucrative aesthetics business through the acquisition of SW1 in Singapore. SMG has also proposed a 1-for-20 rights issue.

The stock is trading at 17.7 times 2018 forecast price-to-earnings and at a 6.3 per cent premium to the rights price. We maintain "buy" with a lower target price of $0.74, based on an enlarged share base and pegged to its peers' average price-to-earnings ratio.

The rights issue is to raise up to $10.8 million. SMG has earmarked 70 per cent of the proceeds for future merger and acquisition activities, and the balance 30 per cent for organic growth requirements.

The main shareholders have provided irrevocable undertakings to subscribe to the rights issue.

Even though the rights issue has been a drag on current share price, we view the proposal as a positive indication that management does not want to further dilute their stake in the company.

SMG is also acquiring an 85 per cent stake in SW1 for $6.5 million, of which $3.5 million will be funded by issuing new shares at $0.578 per share.

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