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.

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.

Stands to benefit from new Parenthood Package

Government initiatives to boost birth rates. The Singapore government announced a new enhanced parenthood package to encourage couples to have more children. Sweeteners to the package include enhanced tax benefits, baby bonus, and leave measures, as well as support for couples who have difficulties conceiving. The enhanced benefits take effect from 2009. The revised package also extends the relevant benefits to beyond the fourth child. The budget for the Parenthood Package is also expected to increase to S$1.6b when it is fully implemented, up from the current budget of S$800m.

We believe TMC stands to benefit the most. Parents stand to benefit from the enhance Package, from higher tax benefits to increased childcare subsidies. As such, couples would be encouraged to start having children soon, or have more children. On top of that, the increased benefits would free up more cash for parents. Hence, they may be more willing to spend on optional medical tests for their newborns, which could result in additional revenue for the hospitals.

In turn, this would benefit the three medical providers (Raffles Medical Group, Parkway and Thomson), as all three provide O&G services. However, with its focus on O&G services, we believe TMC would stand to benefit the most from the expected increase in demand for such services. The enhanced Package also bodes well for its Thomson Fertility Centre, as couples may be more willing to seek fertility treatments.

TMC offers competitive rates. Among the private hospitals, TMC’s average hospital bill is one of the lowest (based on 50th percentile bill size), making it an attractive private hospital to go to for baby deliveries. Coupled with the enhanced Package encouraging couples to have more babies, we expect the volume of deliveries at TMC to increase, boosting its revenue and earnings growth.

We maintain our earnings estimate of S$11.2m (EPS: 3.8 S¢) for FY08 and S$12.3m (EPS: 4.2 S¢) for FY09. We have a fair value of S$0.76 for the stock, based on 19x FY08/09 blended earnings. At the current price of S$0.57, this presents a potential upside of 33.3%. We maintain our BUY recommendation on TMC.