Thomson Medical @ $0.185

Extract of Report fm Philips dated 13-Jul,

Thomson Medical Centre (TMC) is a niche player that focuses on women and children’s healthcare services. As a testimony of its brand equity, the Group was duly awarded the Singapore Promising Brand Award in June 2004 by the Association of Small and Medium Enterprises and Lianhe Zaobao.

Capturing a bigger share of the shrinking pie. TMC managed to register an increase in deliveries in spite of the decline in the national birth rates and stiffer competition from other local heathcare providers that offer extensive O&G services. To further boost the number of babies delivered at Thomson Medical, the Group plans to open new women’s clinics at various strategic locations in order to generate patient referrals for its flagship hospital.

Building the external wing. Like other healthcare players, TMC is eyeing the regional market, particularly within Southeast Asia, for growth and diversification of revenues. The Singapore market is pretty much saturated and growth is limited by the relatively high cost of medical services coupled with competitive pricing amongst the hospitals here. The management has expressed its intention to venture into fee-based healthcare consultancy services as it offers significant follow-on prospects even after the completion of the project.

Attractive valuation. By comparing with its bigger peers such as Parkway Holdings and Raffles Medical Group, which are trading at an average of 20.8x FY05 P/E, TMC seems to be grossly undervalued. However, we also note that both counters are well-supported by prospective dividend yield of 4-5%. Instead, we believe TMC can be better valued using the DCF methodology. Our 12-month price target of $0.22 implies a 12.8x FY05 and 12.1x FY06 PER, which offers an upside potential of 26%. We initiate coverage with a "BUY".

1H05 Financials Review
Revenue was up marginally by 7% y-o-y to $19m from $17.8m for 1H05. The main growth driver came from its specialized and other revenue segment, which grew by 15.5% to $2.9m. The increase was due to contribution from the opening of two new Thomson Women’s Clinics. In addition, gross profit margin has improved from 39.5% to 41.3% in 1H05 as a result of better direct materials margins, labour efficiency and reduction in direct overhead costs.

The Group registered S$2.8m net profit after tax, an increase of 11.8% over last year. This partly results from lower financing costs as bank borrowings was reduced from S$29.7 million to S$18.7 million as at 28 Feb 2005 due to repayment from IPO proceeds.

Comments - This stock has been trading below IPO price of $0.22 since it got listed on 26-Jan-05. Trading vol is normally very low but shot up today, likely due to this report. At $0.185 now, it's up $0.01 for today. I doubt that the vol will be substainable. Without a dividend policy, investors will not find it as attractive unless it becomes a tgt of M&A (Merger & Acquisition). With EPS= 1.05cts in 1H05 and forecast 1.72cts for 2005 (by Philips), watch out for year end then. If they declare even a 0.5cts div, that gives 2.7% yield at 18.5cts share price and will likely do wonders to the share price :D

I am vested here at average cost of $0.185, bought in a moment of emotion when I was expecting my 2nd kid at TMC and also the publicity of Zoe Tay giving birth there :D