This week, Sing Medical (“SMG”) caught my attention.
SMG has dropped 39% from $0.725 on 18 Jul 2017 to trade $0.440 on 3 Oct 2018. My personal guess is part of the fall may be attributable to
a) Lower, or no earnings growth for some of the healthcare players in FY18F. However, this is likely not the case for SMG, as analysts believe SMG is on track for a minimum 40% growth in FY18F net profit. It is noteworthy that SMG already posted a 70% jump in 1HFY18 net profit;
b) Reduction in the general PE valuations ascribed to the healthcare sector;
So, what caught my attention?
a) Positive chart: SMG is testing its downtrend line established since 26 Jan 2018 (See Chart 1 below). Indicators such as OBV, RSI and MACD are strengthening. ADX has started to rise and last trades 22.6 on 3 Oct 2018 amid positively placed Dis, indicative of a trend. 20D and 50D EMA have stopped their declines and are tapering. A sustained breach of the downward trendline (currently around $0.445 with volume expansion is positive. Conversely, a sustained breach of its 52 week low $0.415 with volume expansion is bearish. On balance, chart looks poised to breach its downward trendline in the next couple of months.
Near term supports: $0.440 / 0.430 – 0.435 / 0.415 – 0.420
Near term resistances: $0.445 / 0.455 / 0.470 – 0.475 / 0.480 – 0.485
Chart 1: SMG is testing the downtrend line with strengthening indicators
Source: InvestingNote 3 Oct 2018
b) Cheap valuations compared to peers: SMG is trading at 14x FY19F PE vis-a-vis sector average 29x FY19F PE. Although SMG has a smaller market cap relative to some of its peers, it has a high earnings growth rate;
c) On a price basis, SMG is near the 52-week low of $0.415. 52-week high is S$0.645;
d) Based on Bloomberg (see Figure 1 below), average analyst target price based on Bloomberg is $0.650. This represents a potential capital upside of around 48%;
Fig 1: Bloomberg analyst compilation
Source: Bloomberg 3 Oct 2018
e) Based on SMG’s 2QFY18 results, it mentioned that it continues to explore various avenues to enhance shareholder value and possible corporate actions that may unlock value for shareholders. Such actions may include a possible formal dividend policy in FY2019 and a share buy-back mandate, subject to all necessary approvals and compliance. Although I do not know how long such initiatives will take to materialise, it is still comforting to note that company does take note of shareholder value;
f) SMG also mentioned in their 2QFY18 results that they are likely to continue their growth in 2H as they hire more specialists and open new clinics in Singapore. It also plans to scale their Aesthetics platform, SW1 overseas likely in Vietnam, and Indonesia;
g) Raffles Medical, arguably one of the leaders, if not the leader, has breached its trading range of $1.00 – 1.14 with volume expansion on 1 Oct 2018. If Raffles Medical continues to move, this may fuel some interest in other “cheaper” healthcare plays (with earnings growth) too.
a) As of now, SMG is not giving out any dividends yet; ie no dividend return based on now;
b) There is a possibility that doctors may leave SMG once their lock out periods end;
c) Slowdown in medical tourism;
d) I have no direct access to management and not extremely familiar in their business;
e) SMG is illiquid. Ave 30D volume is around 159K shares per day only. i.e. Not easy to enter or exit;
f) Chart reading is subjective. There is no guarantee that SMG may rally even if the downtrend line is breached on the upside;
g) Execution risk in their “acquire and growth” strategy where profitable businesses are acquired with the aim to grow and expand through further organic growth initiatives.
Readers who wish to know more on SMG can refer to SGX for more information and HERE for the analyst reports.
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P.S: I am vested in SMG for a potential trading play and aim for a few bids of profit if any. I have highlighted SMG to my clients yesterday. Do note that as I am a full time remisier, I can change my trading plan fast to capitalize on the markets’ movements.
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