Thomson Medical – DMG

Thomson delivers

TMC recorded a 16.3% YoY increase in 3QFY08 net profit to S$2.9m, on the back of a 12.9% YoY increase revenue. The results were in line with expectations. Revenue growth was boosted by the successful upgrading of some of its wards, the opening of another Thomson Women’s Clinic, the addition of a senior O&G consultant and the increase in foreign patients. Management intends to continue its upgrading programme to meet the demands of its patients and improve its performance. We maintain BUY, with a target price of S$0.76.

3QFY08 results within expectations. TMC achieved revenue of S$15.7m in 3QFY08, on the back of a 14.7% YoY increase in the number of babies delivered. The successful upgrading works of some wards in FY07 and increased patient referrals from its Thomson Women’s Clinics contributed to the 12.9% YoY increase in revenue. Although operating expenses increased,
TMC was still able to improve its gross profit margin (3QFY08: 44.8% vs 3QFY07: 44.3%) and net profit margin (3QFY08: 18.2% vs 3QFY07: 17.7%). This was helped by the fee increase which TMC implemented in January 2008.

Continued upgrading and expansion of hospital expected to boost revenue. TMC intends to push ahead with its plans to renovate its Level 3 inpatient ward in 4QFY08. It has plans to also upgrade its Level 5 into a premier ward, to meet the growing demand for premium facilities and services. This would allow TMC to raise its fees, which would contribute to further revenue growth. In order to meet the increasing demand for surgical procedures, TMC will also be adding two more operating theatres to its current four.

Outlook for both business segments remain positive. With the upgrading plans in place, the Hospital Operations and Ancillary Services segment is positioned for growth. This is underpinned by the increasing patient referrals from its expanding network of Thomson Women’s Clinics. The Thomson Fertility Centre recorded an increase in overall patient load, particularly Indonesian patients (+35% YoY). As it continues its marketing efforts in the
region, patient load is expected to rise. This would boost contribution from the Specialised Services segment.

We estimate earnings of S$11.2m (EPS: 3.8 cents) for FY08 and S$12.3m (EPS: 4.2 cents) for FY09. We have a fair value of S$0.76 for the stock, based on 19x P/E FY08/09 earnings, which is a discount to its peer average of 26x, taking into account its smaller market capitalization. We maintain our BUY recommendation on TMC.

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