DBSVickers Report - 21 Nov 2007

Thomson Medical All set to deliver

Story: Thomson Medical Centre (“TMC”) is a leading provider of private healthcare services for women and children in Singapore. The 140-bed hospital targets the higher-end segment of the local and expatriates population and is a brand to reckon with.

Point: With higher utilization of hospital space and upgraded facilities, we expect stable revenue growth and improved margins. Greater referrals from tenant specialists should bolster growth, along with hospital consultancy fees from the Vietnam project.

Relevance: We initiate coverage on TMC with a BUY recommendation at a DCF-backed target price of S$0.87, which translates to a PE multiple of 22.9x FY08 earnings. Dividend payout ratio is expected to be maintained at a healthy 50%. There is also the possibility of TMC upgrading to the SGX Mainboard in the near term, adding visibility to the counter.

Raffles Medical Poised for a healthy year and beyond

Story: Raffles Med had a good set of 3Q and 9M results; and, we expect this to continue into 4Q.

Point: We expect FY07 and the forecast years to be led by contributions from both its Hospital and Healthcare divisions, which, in turn, are expected to be driven by
(i) increasing foreign patient numbers;
(ii) buoyant economic and employment figures;
(iii) possible upsides to revenue intensity from higher complexities and full ownership of hospital, giving management more flexibility to optimise hospital space. We have adjusted our ‘07F and ‘08F net profit up marginally by 2%-2.6% to account for lower expenses incurred as a result of operating efficiencies. Excluding gains from JV, we expect full year bottomline to grow by about 47% to c. S$23m in FY07F.

Relevance: The prospects look bright for the Group on the back of the buoyant economy and the Singapore government’s drive to position the city-state as a medical hub. We believe further catalyst for the stock will come, if and when, the Group announces plans to extend its presence overseas. Maintain BUY, TP: S$1.80 based on DCF (WACC 6.2%, terminal growth 1%).