Thomson Medical – CIMB

A little more space

In line. 1HFY08 net profit of S$5.7m (+28% yoy) is in line with our expectations and consensus.

Revenue rose 22% yoy to S$29.5m, driven by Hospital Operations (+21% yoy) and Specialised Services (+27% yoy). Revenue from Hospital Operations rose to S$23.6m on the back of the full operation of two upgraded wards, higher baby deliveries (+15% yoy to 4,413 babies) and increased inpatient admissions from patient referrals from tenant specialists, peripheral specialists and the network of Thomson Women’s Clinics. Revenue from Specialised Services increased to S$6.0m on higher contributions from all its subsidiaries. The hospital consultancy project in Vietnam is progressing on schedule, with a further S$0.3m in consultancy fees recognised in 1HFY08 in addition to the S$0.2m recognised in FY07.

Margin improvements. Despite higher operating expenses (including higher business costs and staff salaries), gross and net profit margins improved to 44.6% and 19.3% respectively, thanks to strong revenue and cost management.

Operational update. The hospital is reconfiguring space previously occupied by the administrative office on Level 6, to add six patient rooms, four of which will be suites. Completion is expected at end-Apr 08. It will also continue to upgrade Level 3 inpatient wards in 2HFY08, and add two operating theatres to the current four to meet the demand for surgical procedures. The Thomson Lifestyle Centre on Level 5 will be relocated to Novena Medical Centre to make way for more clinic space. The group opened its seventh Thomson Women’s Clinic in Mar 08 and will continue to expand its network of satellite clinics. Regionally, a business plan has been completed for setting up a fertility centre in Vietnam to tap the significant unmet

Maintain Neutral and target price of S$0.77. We have kept our earnings estimates unchanged. Our target price remains S$0.77, based on 15x CY09 P/E. Maintain Neutral on the back of potential capacity constraints in the longer term. Stock catalysts could come from regional hospital projects and management consultancy contract wins.

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