Thomson Medical – DMG

TWCC and Vietnam hospital to support growth

Thomson Medical’s FY(Aug)09 earnings came in within our expectations. Revenue achieved was S$67.4m (+11.8%), on the back of a record number of baby deliveries (8,907 babies) during the year and contribution from its Thomson Women’s Cancer Centre (TWCC). Net profit for FY09 grew by 14.2% YoY to S$12.8m. Going ahead, we expect its TWCC and network of Thomson Women’s Clinics (TWC) to continue driving growth. FY10 will see maiden full-year contribution from TWCC and the opening of another TWC, which would contribute to growth. Its hospital project in Binh Duong, Vietnam (Hanh Phuc Hospital) which is likely to commence in 3Q FY10, will also boost earnings growth. Management declared total dividends of 2.8 S¢ per share (including 0.3 S¢ special and 1.0 S¢ interim) for FY09. It is trading at a decent yield of 4.5%. Based on its peer average (ex-Parkway) of 16x, we arrive at a 12-month target price of S$0.78. Maintain BUY.

Attracting patients by being innovative. Thomson Medical is the first hospital in Singapore to launch an interactive and personalised pregnancy and baby website. Through this, it aims to deliver more value to mothers-to-be and attract more baby deliveries at its hospital. To cope with the increasing demand for its services, Thomson Medical will be adding two more operating theatres to its current four. As it starts to market its TWCC across the region, contribution from TWCC is expected to grow and boost overall Group performance in FY10. Tapping on the growing popularity of traditional Chinese medicine (TCM), Thomson Medical has also started offering TCM services to its patients. This would serve to complement its existing O&G services, allowing it to offer East and West treatments to patients. We think that these initiatives would help boost its branding and in turn, contribute to growth.

Hanh Phuc Hospital project slated to commence operations in 3Q FY10. The construction for this hospital will be completed within the next two months. Once in operation, Thomson Medical would receive hospital management fees for running the Hanh Phuc Hospital, which would contribute to revenue and earnings growth.

Maintain BUY. We are estimating earnings of S$14.2m (+10.9%) for FY10. We arrive at a 12-month target price of S$0.78, based on 16x FY10 earnings.

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