Maybank Securities analyst Eric Ong has initiated coverage on Thomson Medical Group A50 with a “buy” call and a target price of eight cents, following the group’s recent acquisition of the FV Hospital in Vietnam.
Ong’s target price is pegged at 23x enterprise value (EV)/ earnings before interest, taxes, depreciation and amortisation (ebitda), and is about 0.5 standard deviation (s.d.) below its historical mean.
He explains: “While trading at a premium to peers, we think this is justifiable given its strong portfolio of healthcare assets in the region which offers high growth potential.”
Ong understands that the company is working on maximising its hospital bed capacity in Singapore, in anticipation of a rise in births due to 2024 being the Dragon year in the Chinese calendar, considered a culturally auspicious year to have children.
The analyst notes that one of the group’s hospitals in Malaysia is expanding its bed capacity expansion too. “In Malaysia, the newly added wing at its Thomson Hospital Kota Damansara (THKD) will be introduced in phases, with potential expansion in the total licensed bed capacity to 535 beds from 350, which is expected to be commissioned in the next two years.”
Meanwhile, Thomson Medical Group’s US$381 million ($512 million) acquisition of the FV Hospital in Ho Chi Minh, Vietnam, is the biggest healthcare deal to-date in Vietnam and the largest in Southeast Asia since 2020.
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“This paves the way for further inroads into one of Southeast Asia’s fastest-growing healthcare markets, including the huge potential for medical tourism in the country. The deal is immediately accretive to its ebitda, at 25% on a pro-forma basis, as well as providing financial scale and geographical diversification for the group,” writes Ong.
The analyst is bullish on the group’s long-term growth plans as it looks to capitalise on its strategic hospital assets to expand to other healthcare adjacencies, with its Thomson Iskandar Medical Hub project in Johor a prime example, thanks to its benefitting from the establishment of Johor-Singapore Special Economic Zone when completed within the next few years.
He adds: “ Thomson Medical Group also owns a prime 9.23 hectare (ha) freehold waterfront land plot in Johor’s City Centre that holds immense potential for monetisation and/or value unlocking, in our view.”
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Upside factors noted by Ong include more births associated with the Dragon year, better-than-expected margins from new services especially in the areas of fertility, paediatric services and integrated specialist healthcare, and lastly, the potential monetisation or value unlocking of its 9.23 ha plot in Johor, which is currently carried at a historical cost of around $255 million on its balance sheet.
Conversely, downside factors include a longer-than-anticipated growth due to execution risks, high leverage in the current high interest rate environment following the FV Hospital acquisition, and the continued decline in births and fertility rate in Singapore, which would shrink the group’s obstetrics and gynaecology (O&G) business.
As at 11.10 am, shares in Thomson Medical Group are trading at 0.2 cents higher or 3.85% up at 5.4 cents.
