Healthcare – OCBC
Another takeover bid highlights attractiveness
Higher value addition in 2009. The total operating surplus of Singapore’s health services industry increased 7.1% to S$995m in 2009, according to a recent study by the Department of Statistics. This was due to a 8.3% increase in operating receipts to S$8.20b, partially offset by a 9.1% rise in operating expenditure to S$7.57b. Overall, the total value addition generated by the health services industry was S$4.37b, representing an increase of 7.3% over 2008.
Privatisation fervour highlights increasing sector attractiveness. Parkway Holdings announced its proposal to be delisted after the successful acquisition by Khazanah Nasional. We believe that Thomson Medical Centre (TMC) could follow suit after prominent investor Peter Lim’s general offer to acquire its shares at S$1.75 a piece. This represents an attractive 62.0% premium to its closing price prior to the takeover announcement, and values TMC at 33.5x PER. As this is substantially higher than TMC’s 15.0x historical average PER, shareholders would likely accept the offer, in our opinion. This is a testament of the high quality of healthcare providers here and has generated renewed hype in the healthcare sector. The spillover effects were seen in Raffles Medical Group’s (RMG) share price rising 5.5% (current PER of 26.4x) on the next trading day after the announcement.
Medical device industry performing well too. Medical device companies have benefited from the rising incidence of diseases. Technological expertise and safety are key differentiating factors. Biosensors International Group (BIG), for example, is technologically superior to its peers, in our view, because of its biodegradable polymer drug-eluting stent. It has also recently increased its capabilities with the acquisition of Devax Inc., allowing it to treat bifurcation lesions now.
Increasing regional competition. Many regional countries are vying for the lucrative medical tourism business. The Union Tourism Ministry of India has estimated that its medical tourism sector could be worth more than US$2b by 2012. However, India is mainly targeting the Americans whereas Singapore healthcare providers serve mainly patients from neighbouring countries such as Indonesia and Malaysia. Healthcare providers here also have a competitive edge in terms of being able to offer sophisticated and higher quality medical procedures. We have a HOLD rating on RMG [FV: S$2.35] because we believe current market valuations have already factored in its strong fundamentals. On the other hand, we have a BUY rating on BIG [FV:S$1.30]. We like BIG for its cutting-edge technology and strategy in coming up with innovative new products to stay ahead of its competition.
Healthcare – OCBC
Another takeover bid highlights attractiveness
Higher value addition in 2009. The total operating surplus of Singapore’s health services industry increased 7.1% to S$995m in 2009, according to a recent study by the Department of Statistics. This was due to a 8.3% increase in operating receipts to S$8.20b, partially offset by a 9.1% rise in operating expenditure to S$7.57b. Overall, the total value addition generated by the health services industry was S$4.37b, representing an increase of 7.3% over 2008.
Privatisation fervour highlights increasing sector attractiveness. Parkway Holdings announced its proposal to be delisted after the successful acquisition by Khazanah Nasional. We believe that Thomson Medical Centre (TMC) could follow suit after prominent investor Peter Lim’s general offer to acquire its shares at S$1.75 a piece. This represents an attractive 62.0% premium to its closing price prior to the takeover announcement, and values TMC at 33.5x PER. As this is substantially higher than TMC’s 15.0x historical average PER, shareholders would likely accept the offer, in our opinion. This is a testament of the high quality of healthcare providers here and has generated renewed hype in the healthcare sector. The spillover effects were seen in Raffles Medical Group’s (RMG) share price rising 5.5% (current PER of 26.4x) on the next trading day after the announcement.
Medical device industry performing well too. Medical device companies have benefited from the rising incidence of diseases. Technological expertise and safety are key differentiating factors. Biosensors International Group (BIG), for example, is technologically superior to its peers, in our view, because of its biodegradable polymer drug-eluting stent. It has also recently increased its capabilities with the acquisition of Devax Inc., allowing it to treat bifurcation lesions now.
Increasing regional competition. Many regional countries are vying for the lucrative medical tourism business. The Union Tourism Ministry of India has estimated that its medical tourism sector could be worth more than US$2b by 2012. However, India is mainly targeting the Americans whereas Singapore healthcare providers serve mainly patients from neighbouring countries such as Indonesia and Malaysia. Healthcare providers here also have a competitive edge in terms of being able to offer sophisticated and higher quality medical procedures. We have a HOLD rating on RMG [FV: S$2.35] because we believe current market valuations have already factored in its strong fundamentals. On the other hand, we have a BUY rating on BIG [FV:S$1.30]. We like BIG for its cutting-edge technology and strategy in coming up with innovative new products to stay ahead of its competition.
SATS – DMG
Serving yet another strong quarter
SATS registered 2Q11 PATMI of S$45.2m (+10.5% YoY, +2.0% QoQ) on the back of S$401.2m in revenue (+10.7% YoY, +5.0% QoQ). This is in line with our expectations. Excluding the effect of jobs credit of S$6.3m in 2QFY10, PATMI would have risen by 30.6% YoY. 1HFY11 PATMI amounts to S$89.5m while 1HFY10 revenue amounts to S$783.3m, making up 46.8% and 47.0% of our full year forecasts. An interim dividend of 5 S¢ was declared and is payable on 2 Dec. Management remains optimistic on its outlook with particular emphasis on the coming 3Q which is seasonally its strongest. Key challenge going forward would be the rising prices of food. Our DCF-derived fair value of S$3.25 implies an FY11F P/E of 18.7x. Based on last closing, there is a 12.5% upside. Maintain BUY.
2QFY11 revenue grew 10.7% YoY to S$401.2m. Revenue growth was achieved on the back of increased flights handled as well as higher cargo and meal volumes. Non aviation revenue grew 14% to S$164.1m as a result of higher catering revenue stemming from the one-off provision of meals for the Youth Olympic Games (YOG) and higher contribution from its UK operations, particularly in the fruit and chilled ready meals categories. Contributions from its overseas associates rose 51% YoY to S$15.9m boosted by higher volumes in overseas ground handling joint ventures.
Outlook. Management was positive on its coming 3Q which has traditionally been its strongest quarter, due to the holiday and festive season. Revenue from its UK operations are also expected to be stronger in the second half due to seasonality. A key concern that was raised during the analyst briefing was the rising cost of food prices which is expected to remain a challenge going forward.
SATS – DMG
Serving yet another strong quarter
SATS registered 2Q11 PATMI of S$45.2m (+10.5% YoY, +2.0% QoQ) on the back of S$401.2m in revenue (+10.7% YoY, +5.0% QoQ). This is in line with our expectations. Excluding the effect of jobs credit of S$6.3m in 2QFY10, PATMI would have risen by 30.6% YoY. 1HFY11 PATMI amounts to S$89.5m while 1HFY10 revenue amounts to S$783.3m, making up 46.8% and 47.0% of our full year forecasts. An interim dividend of 5 S¢ was declared and is payable on 2 Dec. Management remains optimistic on its outlook with particular emphasis on the coming 3Q which is seasonally its strongest. Key challenge going forward would be the rising prices of food. Our DCF-derived fair value of S$3.25 implies an FY11F P/E of 18.7x. Based on last closing, there is a 12.5% upside. Maintain BUY.
2QFY11 revenue grew 10.7% YoY to S$401.2m. Revenue growth was achieved on the back of increased flights handled as well as higher cargo and meal volumes. Non aviation revenue grew 14% to S$164.1m as a result of higher catering revenue stemming from the one-off provision of meals for the Youth Olympic Games (YOG) and higher contribution from its UK operations, particularly in the fruit and chilled ready meals categories. Contributions from its overseas associates rose 51% YoY to S$15.9m boosted by higher volumes in overseas ground handling joint ventures.
Outlook. Management was positive on its coming 3Q which has traditionally been its strongest quarter, due to the holiday and festive season. Revenue from its UK operations are also expected to be stronger in the second half due to seasonality. A key concern that was raised during the analyst briefing was the rising cost of food prices which is expected to remain a challenge going forward.
MIIF – BT
MIIF Q3 earnings up 40.7% to $33.2m
Increased earnings due to higher investment income
MACQUARIE International Infrastructure Fund (MIIF) yesterday reported net profit attributable to equity holders of $33.2 million for the third quarter, up 40.7 per cent year on year.
The earnings boost was on higher investment income. Total revenue for the three months ended Sept 30 was $35 million, up 37.7 per cent from $25.4 million for Q3 last year.
For the nine-month period, however, net profit fell 35.9 per cent to $33.2 million. And total revenue fell 23 per cent to $43.8 million.
MIIF said the falls were in line with expectations and follow the disposal of interests in Macquarie European Infrastructure Fund during Q4 2009, and Arqiva and the Canadian Aged Care in the current year. Arqiva is a communications infrastructure and media services company with a presence in Ireland, mainland Europe and the US.
MIIF said its core Asian infrastructure businesses, such as its Chinese port and expressway units, continue to perform strongly. ‘Revenue at Changshu Xinghua Port is up significantly due to continued cargo diversification, while Hua Nan Expressway has witnessed strong growth in traffic due to continuing economic recovery in the Guangdong region and the opening of phase three of the road,’ said John Stuart, CEO of MIIF’s manager, Macquarie Infrastructure Management (Asia).
‘Management continues to focus on executing MIIF’s strategy of acquiring Asian infrastructure businesses,’ he said. ‘We have reviewed a number of investment opportunities in which to deploy MIIF’s significant cash balances. However, none of these have met the strict investment criteria that we apply.’
MIIF said in its financial statement that it has cash and cash equivalents of $487.7 million.
MIIF units lost half a cent yesterday to close at 58 cents.