Thomson Medical – CIMB

Delivering results

• In line. FY07 net profit of S$9.5m (+40% yoy) is within consensus and 2% above our expectations. Growth was led by increased deliveries, a higher patient load and better contributions from specialist services.

• Revenue rose 13% yoy to S$52.4m, driven by Hospital Operations (+11% yoy) and Specialised Services (+22% yoy). Revenue from Hospital Operations rose to S$41.8m on the back of higher baby deliveries (+7% yoy to a record 7,665 babies) and inpatient admissions from patient referrals from its tenant specialists, peripheral specialists and network of Thomson Women’s Clinics. Revenue from Specialised Services increased to S$10.5m on higher contributions from all its subsidiaries. The hospital consultancy project in Vietnam is progressing as scheduled, with S$0.35m in consultancy fees recognised in FY07.

• Margin improvements. Despite higher staff costs and the closure of two wards for renovation, gross and net profit margins came in at all-time highs of 43% and 18% (17% excluding divestment gains) respectively, thanks to improved operational efficiencies and lower finance costs.

• Record dividend payout of 77%. The group will be paying out a dividend of 1 Sct for 2H07. It paid a total of 1.5 Scts in ordinary and special dividends in 1H07.

• Expansion plans. The group plans to renovate two levels of inpatient facilities and add two operating theatres in FY08. It will further rationalise space to add three medical suites for new specialists and set up another Thomson Women’s Clinic in Ang Mo Kio Hub in 1H08. Both developments are expected to generate patient referrals for its hospital facilities and services. The group is also exploring opportunities to establish a fertility centre in Vietnam to capitalise on Vietnam’s high demand for fertility treatment. Other initiatives introduced in FY07 included the launch of its Enhanced First Born Incentive, Subsequent Born Incentive and Thomson Junior Angels Club programmes to build brand loyalty, as well as the introduction of a Korean service to serve the Korean community in Singapore.

• Maintain Outperform with target price raised to S$0.88. We have raised our FY09 earnings estimate by 6% to reflect stronger contributions from Specialised Services (additional Thomson Women’s Clinic and fertility centre) and introduced FY10 assumptions. We have also raised our target price to S$0.88 from S$0.87, after rolling forward our target basis to CY09 from CY08. Our new target is now based on 16x CY09 P/E (previously 20x CY08 P/E), still maintaining a 15% discount to the peer average.