PhillipCapital analyst Peggy Mak has initiated coverage on Thomson Medical Group A50 -1.92% with a &ldquo buy&rdquo call and a target price of 6.6 cents. 

 

Mak&rsquo s sum-of-the-parts (SOTP)-based target price is pegged at an industry average of 12.5 times FY2025 enterprise value (EV)/earnings before interest, taxes, depreciation and amortisation (ebitda). 

 

The group is one of the largest private healthcare providers for women and children in Singapore. It operates three tertiary hospitals in Singapore, Malaysia and Vietnam with a total of 757 licensed beds. 

 

The group also runs specialist medical clinics and diagnostic imaging centres in Singapore and Malaysia. Furthermore, Thomson Medical Group owns freehold land spanning 1 million sq ft in Johor Bahru, Malaysia, which could be developed into an integrated health and wellness city, including a medical hub under Bursa-listed TMC Life Sciences (TLS), the group&rsquo s 70%-owned subsidiary.

 

In Mak&rsquo s report dated March 25, the analyst notes several positives including its Malaysian operations, which she sees as the &ldquo key growth engine&rdquo . 

 

&ldquo Bursa-listed TLS has enjoyed strong growth since FY2020 ended June 30, led by increased bed count, higher patient load, and bigger bill size with a larger scope of treatment,&rdquo says the analyst.

&ldquo Improved quality of healthcare services and a weak Malaysian ringgit (RM) are drawing both domestic and foreign patients to seek treatment in Malaysia. TLS has room to increase bed count by more than 50%, from 350 currently,&rdquo she adds.

 

Mak also sees strength in the group&rsquo s Franco-Vietnam Hospital (FV) in Ho Chi Minh, Vietnam, due to its geographical coverage of not only Vietnam, but also to the &ldquo burgeoning economies&rdquo of Cambodia and Laos, with a total regional population of 120 million.

 

She adds: &ldquo A full-year contribution from FV in FY2025 could lift ebitda to 12.6% above that of FY2023. Founded in 2003, FV is one of Vietnam' s six Joint Commission International (JCI) accredited hospitals. It has 200 doctors offering more than 30 specialties. FV is adding a new wing to raise floor space by 33% from FY2026.&rdquo

 

The acquisition of FV was confirmed on Jan 17.

 

Finally, Thomson&rsquo s land in Iskandar could yield a gross development value of $3.6 billion and a development gain of about $1.1 billion once its plans to build its integrated health and wellness city are realised. 

 

Other factors that could lift the value of the land are the proposed special economic zone between Johor and Singapore as well as the completion of the Johor Bahru-Singapore Rapid Transit System Link (RTS) at the end of 2026.

 

&ldquo The development of the land could also free up cash for the group and lower debt. Net debt has risen to $835 million, and net gearing 1.48x as at December 2023, after the acquisition of FV at end 2023,&rdquo notes Mak.

 

She continues: &ldquo Annualised net debt/ebitda was 10.9 times, and interest coverage was 1.9 times. With contributions and cash flow from FV from 2HFY2024, net debt/ebitda is expected to fall to 7.5 times in FY2025, and interest coverage improves to 2.5 times.&rdquo

 

However, the analyst expects the group to see a dip in its net profit for FY2024 after the tapering off of its Singapore government contracts for Covid-related work in 2023. 

 

&ldquo The absence of this income stream and cost incurred in FV purchase could lead to a 65% decline in FY2024 net profit but +157% rebound in FY2025 with FV contributions,&rdquo concludes Mak.