Excerpts from analyst's report

UOB Kay Hian analyst: Andrew Chow, CFA

On A New Growth Trajectory After Recent Acquisition

In our view, the group’s acquisition of the practice of Dr Joyce Lim, one of Singapore’s leading aesthetic professionals, will put SOG on a new growth trajectory. Even after the new shares for the acquisition, we estimate a post-acquisition fully diluted EPS enhancement of 27-29% and a conservative target price of S$0.90. 

SGOG9.15Photo: Singapore O&G

• Good acquisition at accretive prices. The group recently announced the acquisition of all the businesses and practices of Dr Joyce Lim, who is one of Singapore’s best known and leading aesthetic professionals.

The consideration is S$26.5m, of which S$14m will be in cash (payable in three tranches; final instalment two years following the completion date) and the remaining S$12.5m in new shares of SOG (20.4m at S$0.6127). We understand the acquisition PE is 10x, which is significantly below SOG’s 2016F PE of 23.4x prior to the proposed acquisition. The completion of the acquisition is targeted by end-15.

• Sum is greater than the parts. We are upbeat on the acquisition as Dr Joyce’s business is synergistic to SOG. This will enable SOG to expand its offering of services complementary to women’s healthcare. Dr Joyce also holds one of the difficult-to-get licenses that allow her to train other aesthetic professionals and this could allow SOG to develop aesthetic professionals who can eventually serve its patients at its eight clinics across Singapore. Furthermore, Dr Joyce Lim also offers cosmeceutical skin care products, which can be sold across SOG’s various clinics.

AndrewChow UOB"More accretive M&As to come?We believe that the group will continue to source for accretive M&As. In our view, SOG’s track record, compelling dividend and listing status will allow the group will entice more doctors into the group for a win-win partnership." -- Andrew Chow (photo)

• Raising estimates post accretive acquisition. Factoring in the new shares to be issued and the contribution of Dr Joyce’s business from 2016 onwards, we conservatively estimate the enhancement in 2016F and 2017F EPS to be 29% and 27% respectively. 2016F dividend yield will also rise to 4.2% (from 3.3% previously). We see upside to our dividend yield as we reflect a dividend payout of 80%.

• Maintain our BUY recommendation with higher target price of S$0.90 based on a 20% discount to Raffles Medical. We conservatively adopted a discount given SOG’s lower market capitalisation but we think the discount could narrow given SOG’s higher dividend yield, higher ROE and strong EPS growth.

We believe the market’s limited reaction to the latest accretive investment is an excellent opportunity to buy into this growing franchise. Our earnings estimates have not factored in the potential synergies from the scaling up of the recent acquisition as well as the potential sales of the cosmeceutical skincare products.

Full report here. 

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