Excerpts from latest analyst reports......

DMG & Partners starts coverage of HEALTHWAY MEDICAL with a 28-ct target

Analysts: Lynette Tan & Terence Wong

Low gearing and strong cash flow places Healthway in good position to take on
M&A opportunities. Healthway has a low net gearing of 0.2x as at end 3Q09. We estimate that it would be able to maintain this level of gearing at end FY09 and lower its net gearing to close to zero by end FY10.

Healthway’s operations generate stable cash
flows. In 3Q09, it generated S$4.1m (9M09: S$12.1m). With a healthy balance sheet and steady cash flows, Healthway is in a good position to expand its network and take on
strategic M&A opportunities that come by its way.

  31 Dec 09 price S$ Market cap S$ m                       PE (x)
2008             2009F           2010F
Parkway Holdings 2.92 3301.2 94.8 34.9 36.3
Raffles Medical 1.45 753.4 23.9 19.7 17.3
Thomson Medical Centre 0.69 201.5 17.7 15.8 14.2
Health Management 0.10 48.1 -110.6 N.A. N.A.
Pacific Healthcare 0.11 30.9 -2.6 N.A. N.A.
Healthway Medical 0.135 186.9 19.6 11.8 10.1
Average     7.1 20.6 19.5

Source: DMG & Partners

Earnings are estimated to surge 65.2% in FY09, supported by full year contribution
from the clinics it had acquired in FY08, namely Singapore Baby and Child Clinic(SBCC) and Island Orthopaedic. Healthway’s 9M09 performance (S$12.1m) has already exceeded that of FY08 (S$9.6m).

Growth momentum expected to continue into FY10 and FY11. With the opening of its new specialist centres, we think that revenue from Healthway’s specialist services would continue to grow. This is likely to be further supported by the recovery of the medical tourism industry and the demand for quality healthcare services from local and
foreign patients.

L-R: Dr Wong Weng Hong, MD (medical services), Dr Tan Say Lock, deputy medical director (manpower/special projects). Photo by Sim Kih

Primary healthcare expected to grow by at least 20%. Following the H1N1 outbreak,local patients have become more cautious. More tend to visit a GP for slight symptoms and to be vaccinated. Having a large clinic network also means a higher inventory ofH1N1 vaccines.

On top of that, with a growing population in Singapore, we think that
there will be greater demand for primary healthcare services in the private sector as the public healthcare system will be under pressure. This would support revenue growth in Healthway’s primary healthcare division.

Healthway is also targeting to expand its
network to 120 family medicine clinics (from current 60) in four year’s time. We are expecting revenue growth of 24.9% and 20% in this division for FY10 and FY11.

Meaningful contribution to earnings from FY12. We expect operating margins to be
lower in the next two years (FY10F: 18.4% and FY11F: 14.5%), with the increased expenses coming from its expansion in China. We are expecting its China operations will start contributing meaningfully from FY12 onwards, which would boost earnings growth significantly from that point on.

17.1% earnings growth in FY10; 24.1% in FY11. Hence, we are expecting Healthway to achieve earnings of S$18.5m in FY10 and S$23.0m in FY11, driven by contribution from its new clinics. As a result of an enlarged share based (following its rights issue), EPS is likely to dip slightly to 1.11 S¢ in FY10.

Attractive valuation. We have applied the DCF methodology to value Healthway.
Assuming a WACC of 8.5%, we arrive at a target price of S$0.28, implying a forward P/Eof 25x. For a company with an extensive network of medical centres and good growth potential, Healthway is currently trading at an attractive P/E of 12.1x FY10 earnings. We
initiate coverage with a BUY recommendation.


Analyst: Low Pei Han

Swiber Holdings (Swiber) announced a series of order wins totaling
at least US$265m (excluding renewal options) over the last two months, and this figure comprises about 61% of contract wins in 2009. While YTD wins have exceeded our 2009 contract win estimate, these events were not entirely out of our expectations.

Nonetheless, these contract wins are
positive for Swiber, since it is imperative that its assets are kept busy given its significant upkeep. We are uncertain of margins for the new projects, as oil and gas service companies are still facing relatively intense competition in the bidding space. There is a possibility that some competitors may bid for contracts at reduced prices to gain experience or rmarket share, or to cover fixed costs of fleets.

As Swiber's core operating
margins have fluctuated quite a bit in recent quarters, we would prefer to monitor its costs before we turn bullish on the stock. Nevertheless, we are raising our fair value estimate to S$1.10 based on 9x FY10F earnings and higher contract wins estimates. Maintain HOLD.

Westcomb Securities initiates coverage of CHNA KUNDA with 36-ct target

Analyst: Lee Khai Chian
China Kunda management meeting fund managers recently in Shenzhen. Photo by Terence Wong

Initiate coverage with BUY; target price S$0.360: We prefer to adopt two-stage free cash flow to equity (FCFE) as core valuation methodology. In terms of price-earning multiple, China Kunda is largely undervalued as average forward PER of auto parts sector in China isover 20 times while the Company is currently valued at less than 10 times.

Notwithstanding the differences arising product offering, risk,
growth potential between the Company and its comparables, its much lower relative PER deserves a second look from investors. Our two stage FCFE consists of 5 years of high growth period and followed by stable growth period.

During 5-year high growth phase, we assume
18% average earnings growth and 13.20% cost of equity. During stable growth stable, we assume terminal growth to be 3%, 1.2x capex-to-depreciation ratio and 12.32% cost of equity. As such, wed erive a target price of S$0.360, implying a forward PER of 12x. Buy.

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