Singapore Medical group - Very undervalued high quality business

This company is a value stock that I find compelling.

The Group has four established pillars, namely Aesthetics, Diagnostic Imaging & Screening, Oncology and Women’s and Children’s Health.

Within Singapore, SMG has more than 30 clinics strategically located in central Singapore and mature heartland estates.

SMG embarked on a rapid expansion drive in 2013 and has continued since to expand beyond Singapore and establish its presence in Indonesia, Vietnam and Australia.

History.

2016

• Subscribed for additional share capital of S$400,000 in Lifescan Imaging Pte Ltd

• acquisition of Novena Radiology Pte Ltd

• Opened a new Obstetrics and Gynaecology clinic

• Subscribed shares in CityClinic Asia Investments Pte Ltd through SMG International (Vietnam) Pte Ltd

• Completed the acquisition of Astra Women’s Specialists Group of clinics

Revenue 41580, EBITDA 3791 profit 2143

2017

• Entered into a Strategic Collaboration Agreement and Placement Agreement with CHA Healthcare Co., Ltd

• Agreements to acquire Children’s Clinic Central Pte Ltd and Kids Clinic @ Bishan Pte Ltd

• Opened a multidisciplinary clinic at OUE Downtown Gallery

• Opened a new obstetrics and gynaecology clinic at Toa Payoh Central

• Agreement to acquire Babies and Children Specialist Clinic Pte Ltd

• Opened the new diagnostic imaging centre at Novena Medical Cente

• a new joint venture entity, CHA SMG (Australia) Pte Ltd (“CSA”)

Revenue 68001, EBITDA 12945 profit 8825

2018

• Opened a new obstetrics and gynaecology clinic, Astra Laparoscopic & Robotic Centre for Women and Fertility, at Paragon

• Opened a new cardiology clinic, Cardiac Centre International, at Paragon

• Opened a new paediatrics clinic under Kids Clinic at Bedok Point

• Completed the acquisition of Pheniks

• Completed the Rights Issue of 14.3 million ordinary shares

• Opened a new dental clinic under The Dental Studio at Bishan

• Opened a new paediatrics clinic under Kids Clinic and a new obstetrics and gynaecology clinic under Astra Women’s Specialists at Oasis Terrace, Punggol

• Opened a new aesthetics clinic under SW1 Clinic at OUE Downtown Gallery

• Launched of the new telemedicine Platform by HiDoc

The right issues proceeds were 6 millions /223 millions of market cap at a FW pe of 17, and used at 82% for an acquisition.

Revenue 85069, EBITDA 19010 profit 12915

2019

• Opened a new breast care clinic under The Breast Clinic at Paragon

• Subscription of additional 76,269 ordinary shares in CCAI resulting in the Group’s effective interest increasing to 25.7%

• Opened a new paediatrics clinic under Kids Clinic at Novena

Revenue 94672, EBITDA 26622 profit 13635

2020

• Covid of course affected the company.

• "we remained in growth mode through organic initiatives with the onboarding of a new IVF doctor in 3Q2020, a new O&G doctor in 4Q2020 and the opening of a new Women’s Health and Paediatric clinic in the Eastern Region of Singapore in 4Q2020."

Revenue 87340, EBITDA 23848 profit 9087

EPS trend is good pre 2020.

2021

• continued expansion with the increased investment in Vietnam.

• Huge improvement in H1

• All these figures were in SGD thousands, so H1 profit to equity reads as 7 millions

Revenue 49682 vs 38945, profit 7727 (vs 3483). Minority profit is low at roughly 500k.

So what do we have in summary?

• Dividend: pays a very small dividend and only since 2020 ("formal dividend policy to declare dividends of not less than 20% of the Group’s core earnings, excluding the share of results of joint ventures and associates in any financial year.")

• Revenue ; Health is 70% (Obstetrics & Gynaecology and pediatrics) and diagnostics and aesthetics is 30% (2019). It looks like the low birth rate in Singapore is affecting the sentiment on this stock, but there is actually good growth through expansion and also women's health is not necessarily related to birth.

• "The Group mainly derives its revenue from Singapore, except for its share of results from joint ventures and associates (..) The share of losses from joint ventures from foreign operations includes profits from Vietnam of $73,000 (2018: losses of $261,000) and profits from Indonesia of $378,000 (2018: $176,000). The share of losses from associates of $183,000 (2018: profits of $141,000) were derived from Australia." I think there is definitively some hidden value if startup costs hide profits from overseas associates and Joint ventures.

• It is notable that the operating cash flow after tax and interest is much bigger than the net profit, leaving a big cash generation. However I received a comment on my old website that most of that is due to the Leases accounting which is a real cash expense.

• net cash position of S$18.1 million

• market cap is 150 million, so PE of 10.7 based on H1. For cash flow it is even lower.

In conclusion it is very cheap for a defensive and growing business, including net cash and joint ventures overseas.