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.

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.