SINGAPORE (Feb 24): With five additional specialists and six doctors on board, Asian Healthcare Specialists’ (AHS) recent $32.1 million acquisition of Cornerstone Asia Health (CAH) for a 51% stake makes it a worthy investment, analysts say.
See: Asian Healthcare Specialists acquires 51% stake in Cornerstone Asia Health for $32.1 mil
AHS started off as an orthopaedic specialist providing general and sub-specialised services such as knee and hip replacements, sports medicine/surgery, spine surgery, foot/ankle surgery and minimally invasive orthopaedic procedures.
More recently, it set up physiotherapy and anaesthesiology arms to complement its core business. In this time, it was recruiting new doctors at a rate of one specialist every two years, Liu Jinshu, an analyst at Tayrona Financial states in a Feb 24 note.
Following the acquisition, AHS has 14 specialists on board – a number which is set to increase given the group’s stronger ability to attract both experienced and younger doctors.
“The acquisition is not only earnings accretive but will also create a larger platform for the recruitment of new specialists and doctors to join the enlarged group, thus expanding the trajectory of [AHS]”, notes Liu.
And the group already has a strategy - paying a premium for more experienced doctors with stable customer bases, and providing mentorship and more diversified client bases to younger doctors leaving the public sector.
So far, two younger doctors – who have been hard to recruit – with three years of experience at AHS between them, are contributing positively to the group’s revenue.
To this end, Liu is looking at a 48% increase in the group’s FY2020 earnings to $4.24 million, from the $2.9 million it recorded in FY2019 ended September 2019 – the most recent results available.
This will translate into a 22% growth in its Earnings Per Share (EPS) to 1.1 cents from the 0.9 cents it logged in FY2019.
Aside from the larger customer and staff base, the higher revenue will come from the provision of more diversified services, explains Liu. For one, AHS can now leverage on CAH’s multi-disciplinary offerings in gastroenterology, urology, ophthalmology, dermatology and family medicine, to further diversify its specialisations and reach out to more clients.
Potential for acquisitions
The group’s $12.4 million cash and cash equivalents as at 30 September 2019, put it in good stead to execute further acquisitions, says Liu.
One such acquisition may be the remaining 49% of CAH, which Liu describes as a “mutually beneficial” move if both companies continue to grow and perform. Benefits include economies of scale in the form of cost savings.
Alternatively, AHS also has the option to further strengthen its position in the specialities brought in by CAH, through acquisitions of other companies or recruitment of doctors specialised in those areas, says Liu.
However, he says this is left to be seen as possible acquisitions are dependent on market conditions and the valuation of companies.
Nevertheless, he says the high cash flow is to shareholder’s benefit, in that it “support[s] the company’s dividend track record.
For now, shareholders can expect a dividend pay out of 1.2 cents, following the completion of the acquisition of CAH. This gives it an attractive yield of 6.2%, notes Liu.
As such, he has posted an ‘overweight’ or buy call on the share at a target price of 30.5 cents – 57.2% up from its current price.
As at 3.25pm, shares at AHS were down 6.19% at 20 cents.
