Month: October 2009
Thomson Medical – AmFraser
Beginning a New Chapter of Growth
• FY09 revenue and net profit met our expectations. Full-year revenue increased 11.8% to S$67.4m while net profit rose 14% to S$12.7m. Number of deliveries hit a new record high of 8,907 versus FY08’s 8,567. Revenue from both hospital operations and specialised service segments improved. Referrals from satellite Thomson Women Clinics have also increased steadily over the past 3 FYs.
• Contribution from Thomson Women Cancer Centre. Despite starting operations in Feb 09, the TWCC has contributed S$1.11m to revenue through its own operations and usage of the hospital’s facilities. Management expects the clinic to break-even soon and have plans to bring this concept to Hanh Phuc Hospital in Vietnam.
• Hanh Phuc Hospital progressing well. The 260-bed hospital is onschedule to commence operations in Q1 of 2010. They are in the process of purchasing equipment and recruiting staff. Management also mentioned they are looking at providing in vitro fertilisation (IVF) services in Vietnam due to the high demand and low supply there. For their second hospital consultancy project in Hanoi, they have submitted the business plans (stage 1 of a 7-stage process) and may take a 25% stage upfront. As the date of commissioning of Hanh Phuc Hospital draws near, we are getting more excited as the Company begins its next phase of growth through its first overseas venture.
• Final and Special dividend. The Company announced final and special dividend of 1.5 SG cents and 0.3 SG cents respectively. Including the interim dividend of 1 SG cent, total dividend will amount to 2.8 SG cents. At last close of 62 SG cents, this translates to an yield of 4.5%.
• We raise FV to 75 SG cents and reiterate BUY. The Company’s FY09 results are in-line with our expectations. However, we reviewed our revenue assumptions for FY2010 to FY2012 and feel that there are grounds to increase them slightly. Firstly, a new senior O&G specialist will be joining them in Q3 FY2010. The addition of senior doctors usually bring significant revenue contribution from usage of hospital facilities and other add-on services. Secondly, the Company has plans to add 2 more operating theatres in Q4 of 2010 and they will contribute to FY2011’s results. Lastly, we continue to be confident of Management’s ability to execute the Vietnam consultancy project well which will then open more doors for the Company. For investors with longer-term horizon, we believe TMC merits a BUY recommendation with an increased FV of 75 SG cents.
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.
Thomson – BT
Thomson Medical’s Q4 profit increases 30%
THOMSON Medical Centre has reported a 30 per cent increase in net profit for its fiscal fourth quarter, on the back of strong growth from its core business of providing premium healthcare services to women and children.
Thomson Medical’s net income rose to $3.4 million for the quarter ended Aug 31, 2009, from $2.6 million the year before. Its group revenue jumped 19.6 per cent to about $18.0 million.
The group’s revenue from its hospital operations and ancillary services segment rose 14.5 per cent to $13.5 million. One driving factor was the 21 per cent rise in revenue for both obstetrics and gynaecology services. The group also delivered 240 more babies compared with the year-ago period, bringing the total delivered for the quarter to 2,279.
Revenue from the specialised and other services segment climbed 37.9 per cent to $4.5 million.
For the full year to Aug 31, net profit rose 14 per cent to $12.72 million with revenue up 11.8 per cent at $67.4 million. It declared a final dividend of 1.5 cents and a special dividend of 0.3 cents a share.
‘Our commendable set of results underscores the resilience of our business as well as the progress we have made on several fronts in FY2009, all of which contributed to our double-digit top and bottom line growth,’ said its executive chairman Cheng Wei Chen.
Dr Cheng added: ‘To name a few, Thomson Women Cancer Centre, the first dedicated cancer centre for women in Singapore, commenced operations in February 2009. The recently completed resort-style wards contributed to increased deliveries and inpatient admissions. Our network of satellite clinics continues to bring more patient referrals to the hospital while a senior O&G specialist who took up clinic tenancy in the hospital in April 2009, further added to the utilisation of our hospital’s facilities and services.’
The group said it will continue to develop more value-added services and initiatives to meet the needs of patients and their families under its comprehensive maternity membership programmes.
Thomson Medical also said that its hospital consultancy and management project in Vietnam, the Hanh Phuc International Women and Children Hospital, is scheduled to complete its construction in the fourth quarter of this year, and will begin operations in the third quarter of FY2010.
The group said that, despite the uncertainty of the global economic recovery, it believes the demand for healthcare services will continue to be strong. It expects the Cancer Centre and its regional hospital consultancy services – its new growth drivers – to contribute to its overall performance.
Taking into account the activities lined up for FY2010, Thomson Medical expects to remain profitable in FY2010.
The group’s shares closed unchanged at 60.5 cents yesterday.
MIIF – BT
MIIF sells Europe-fund stake for $132m
MACQUARIE International Infrastructure Fund Limited (MIIF) has agreed to sell 71.6 per cent of its interest or a 4.5 per cent stake in Macquarie European Infrastructure Fund (MEIF) to a number of investors for $132 million.
MIIF said yesterday that it would use the proceeds to repay $19 million in debt and retain the rest ‘to provide balance sheet flexibility for the fund’. MIIF said that it acquired the interest in MEIF in June 2005 for $139.5 million and has received proportionate distributions of $35.3 million from the investment. — Reuters
M1 – CIMB
Highlights from luncheon
Luncheon in Singapore
We hosted a post 3Q luncheon with representatives of M1 on Oct 20th following its 3Q results on Oct 16th. The company was represented by Karen Kooi (CEO), See Leng Sim (Deputy Director of Finance) and Ivan Lim (GM, Finance and IR). There were a total of 8 clients who attended the function. The key talking points centred around the next generation national broadband network (NGNBN), the Qala acquisition, roaming, its single product disadvantage and capital management initiatives. We maintain our earnings forecast, target price of S$2.07 (WACC: 9.5%, LT growth: 1%), and NEUTRAL call. We see a lack of price catalysts but this is offset against the attractive yield of 21% for FY10 which includes our expectations of a special dividend, the most upside to NGNBN and the best exposure to wireless broadband.
In a good position for NGNBN
Qala acquisition to fill in gaps. The Qala purchase provided M1 with access to the corporate fixed broadband market and a customer base to leverage on. Its product suite would also be enhanced as it could provide managed services as well. M1 has commenced the integration process and would realise cost savings from nonduplication systems such as billing and through the rationalisation of staff. Qala is profitable despite a small customer base and has the potential to grow. From this point on, M1 ruled out making other acquisitions as it would only pursue the organic route.
Tight-lipped about strategy. M1 would not divulge specifics over its strategy towards NGNBN. But consistent with its style, M1 would not compete on pricing nor would it bid for premium content. However, we see pricing as an important lever as M1 lacks a unique selling proposition and we gather that some retail service provider (RSP) would be disruptive from the outset. M1 reiterated its longer term goal of obtaining a 20% market share in the corporate and residential fixed broadband market by 2015. Assuming broadband prices remain stable, M1 estimates that the 20% market share could provide a 40% uplift to current revenue.
Roaming to potentially boost earnings
Greater tourist arrivals beneficial in two ways. The opening of the two integrated resorts (IR) in 2010 is expected to draw an additional 2-3m visitors to Singapore, according to the Singapore Tourism Board. The arrival of more visitors would benefit M1 in two ways, namely higher roaming and prepaid revenue. We estimate that FY10’s earnings could be lifted by 5-8% from the additional tourists. We detail our assumptions below. This could also help to spur roaming revenue which has not recovered as roaming traffic was still down some 25-26% on a yoy basis.
• We assume that each tourist would spend the same amount as they did in FY08
• We assume that inbound roaming constitutes 75% of the total roaming revenue
• We assume that EBITDA margins for inbound roaming is 60%
• M1 would capture 30% of the new visitor arrivals
• 5% of the new arrivals would purchase a S$15 prepaid card
Preferred partner to Axiata and Vodafone. M1 is the preferred roaming partner to both Axiata and Vodafone which means that their subscribers automatically lock-on to to M1’s network when they enter Singapore. While the partnership with Axiata was expected given the shareholding linkages, the Vodafone deal is a more stunning coup.
It first secured the deal in 2003 and has recently renewed the arrangement for a further 3 years to 2012. In exchange for a fee, Vodafone supplies business products (such as dongles) at cheaper prices, gets preferential roaming and signalling arrangements. About 70% of Vodafone’s inbound arrivals lock on to M1’s network when they are in Singapore but M1 did not disclose the revenue contribution.
Other updates
Capital management. M1 would not rule out capital management for FY10 but the final decision rested with the board and any decision would only occur after it had refinanced its S$250m loan due in May 2010. The board has traditionally been conservative and would not support a special dividend unless the environment improves.
We are more optimistic and have built in a special dividend of 23.5 cts/share into our forecast. We expect credit markets to recover and had previously forecasted M1’s net debt/EBITDA to fall to 0.4x in FY10, leaving plenty of room to gear up. M1 last undertook a capital management exercise in 2Q07 when its net gearing was 1.0x net debt/EBITDA, a capital structure M1 has described as ideal.
iPhone value. M1 had received a lot of interest for the iPhone implying pent-up demand despite SingTel’s de-facto exclusivity for more than year. M1 had about 10- 20K iPhone users on its network but we believe that growth will accelerate post the launch of the phone.
We view the iPhone as an excellent acquisition and retention tool and an ARPU stimulator through higher data usage. M1 concurred noting that the main value of the device was the higher ARPUs it generated and the fact that it would have faced an untenable situation without the phone. The iPhone is well-suited for its take 3 programme, where ARPUs are 1.15x higher than that of a normal postpaid user. While pricing has yet to be determined, M1 will not deviate too far from the subsidies provided by SingTel. We estimate that SingTel recovers the iPhone subsidies within a period of 6-14 months and believe that M1 would witness a similar payback period.
Cost cutting measures and competition. M1 attributed the 1.4% pts drop in EBITDA margins in part to seasonality. Over time and in a steady state environment, EBITDA margins would drift back up to the 44-46% of service revenue. The main areas to attack would be in the leased line cost as it completes its backhaul investment by end 09. Besides that, it would focus on cost initiatives by improving staff efficiency, expanding its call centre in Kuala Lumpur to handle 50% of the call traffic and improve its network efficiency.
Meanwhile, M1 has seen heavier competition in wireless broadband which caused its net adds to fall to 12K in 3Q from 15K in 2Q because of price discounting by StarHub. In order to retain its market share, it would have to match those promotional prices.
Valuation and recommendation
The session did not provide major revelation with much of the talking points addressed in the 3Q call and in previous discussion with M1. The only real new area explored was the roaming agreement with Vodafone. As a yield play, we continue to advocate M1 over StarHub as its earnings stream is more visible and secure. Moreover, it has the capacity to gear up and we have factored in a special dividend of 23.5 cts/share into our forecast. We maintain our earnings forecast, target price of S$2.07 (WACC: 9.5%, LT growth: 1%) and NEUTRAL call. Although we see a lack of catalysts, this is balanced out by its yield of 21.4% which is inclusive of the 23.5 cts special dividend, the most upside to NGNBN and the best exposure to wireless broadband.