Small/Mid-Cap | Healthcare

Thomson Medical Centre Ltd

After a Long Wait, Finally in Sight

RETAIL RESEARCH MICA (P) 248/07/2008 ACCUMULATE (Downgraded)

12 Apr 2010

• Q2 results in-line with forecast. Thomson Medical Centre (“TMC”) Our Recommendation
announced a 21% YoY rise in FY2010 Q2 revenue to S$18.87m.
Together with Q1, the recent 2 quarters saw TMC’s best results Fair Value (SGD) 0.77
since inception. ‘Specialised and other services’ segment contrib- Last close price (SGD) 0.70
uted strongly mainly due to increased patient load in TMC’s Thom-
Holding period 12 months
son Women’s Clinics, a full six months’ contribution from Thomson
Women Cancer Centre (“TWCC”) and the addition of Thomson
Paediatric Centre (“TPC”) which started operations on 1 Jan 2010. Company & Stock Data
Market cap (SGD Mil) 204.5
• Bottom line gains. NPAT increased 19.1% YoY to S$3.64m in the
12-mth trailing P/E 14.7x
absence of a S$4m asset revaluation loss in the comparative quar-
ter. Gross and net margins remain at a healthy 41.8% and 19.3% Price-to-book 2.0x
respectively. Number of babies delivered fell slightly in Q2 to 2,207 12-mth Dividend yield 4.29%
from Q1’s record of 2,478. 52-wk high 0.72
52-wk low 0.42
• Synergy between core and other services. We like how Manage-
ment builds on the Company’s brand name by breaking new 30D average volume 130.5K
grounds . Both the TWCC and TPC are showing promise after a few 30D average value 90.0K
months in operations. While growing TMC’s suite of services, the Free float 36.8%
tie-ups with the new senior consultants added referrals to the hospi-
Beta 0.77
tals own services. To cater to increased demand, Management has
stated plans to add 2 Operating Theatres, 2 delivery suites and 1
day surgery centre. Total capex is expected to be ~S$4m.

• Vietnam venture in sight. After a slight delay, the Management Share Price relative to STI (1-Year)
has planned the soft opening of the Hanh Phuc Women and Chil-
dren Hospital (“HPWCH”) in Sep 2010. This is the Company’s first
overseas venture and a major milestone. To date, the main struc-
ture, exterior and helipad are largely complete. The 260-bed hospi-
tal will be launched in phases once the medical equipment are
moved in. Concurrently, the Management is scouting for sites in Ha- TMC
STI
noi to build their 2nd hospital under the same consultancy contract.

• Interim dividend. TMC declared an interim dividend of 1.2 SG

cents per ordinary share (one-tier). This represents a 48.7% payout
ratio, in line with what the Company has traditionally declared.

• Downgrade to ‘ACCUMULATE’ after share price rise. The in-line Winston Peak, MSc
results and lack of new major short-term catalyst deprive us a winstonpeak@amfraser.com.sg
chance to make significant changes to our forecast. Furthermore, +65 6236 2389
HPWCH will now only start contributing in FY2011. It will not be until
FY2012 when the hospital gets up to speed that we expect to see
major contribution. Things will get really interesting if and when
TMC takes up equity stake (up to 25%) in the hospital as allowed
under the contract. Considering the above, we arrive at a FV of 77
SG cents. The recent increase in TMC’s share price has moved it
to within a whisker of our FV. So while we continue to like the Com-
pany, we believe the counter now merits a less compelling
‘ACCUMULATE’ recommendation.
2008 2009 2010F 2011F 2012F
Revenue 60,264 67,394 74,535 83,476 92,206
EBITDA 17,016 19,212 21,595 24,033 26,901
Net Profit 11,155 12,715 14,815 16,774 19,058
Rev Growth 15.1% 11.8% 10.6% 12.0% 10.5%
Net Profit Growth 17.4% 14.0% 16.5% 13.2% 13.6%
EPS (SGD cts) 3.82 4.38 4.99 5.65 6.42
EBITDA Margin 28.2% 28.5% 29.0% 28.8% 29.2%
Please see important disclosures at the end of this publication
AmFraser Securities Pte Ltd Thomson Medical Centre Ltd
INCOME STATEMENT
Adjusted Adjusted Forecast Forecast Forecast
In SGD '000
31-Aug-08 31-Aug-09 31-Aug-10 31-Aug-11 31-Aug-12
Revenue 60,264 67,394 74,535 83,476 92,206
Cost of Sales 33,693 38,312 42,485 47,581 52,557
Gross Profit 26,571 29,082 32,050 35,895 39,649
Interest Income 157 58 180 261 387
Other Operating Income 804 2,008 2,609 2,922 3,688
Total Operating Income 27,532 31,148 34,839 39,077 43,724
Operating Expenses 13,456 15,321 16,476 18,360 20,220
Operating Profit/(loss) 14,076 15,827 18,363 20,717 23,504
Interest (expense) (310) (145) (92) (31) -
Other non-op income/ (exp) (9) - - - -
Profit Before Tax 13,757 15,682 18,271 20,687 23,504
Less: Income tax exp/ (credit) 2,602 2,967 3,456 3,913 4,446
Profit after tax 11,155 12,715 14,815 16,774 19,058
Less: Minority Interest (44) (76) 178 201 229
Net Profit/(loss) att to ord. S/H 11,199 12,791 14,637 16,573 18,830
EBITDA 17,016 19,212 21,595 24,033 26,901
Free Cashflow 10,183 13,681 13,442 17,241 19,953
EPS (SGD cts) 3.82 4.38 4.99 5.65 6.42

BALANCE SHEET
Adjusted Adjusted Forecast Forecast Forecast
In SGD '000
31-Aug-08 31-Aug-09 31-Aug-10 31-Aug-11 31-Aug-12
Cash & cash equivalents 15,570 20,567 22,886 27,772 35,260
Trade and Other Rec 4,457 3,492 5,652 6,738 7,442
Inventory 951 1,163 1,164 1,304 1,440
Property, plant & equip (net) 109,028 106,922 107,737 108,379 108,853
Other Assets 1,061 919 919 919 919
Total Assets 131,067 133,063 138,358 145,111 153,914

Trade Payables 11,800 15,113 13,968 15,689 17,324

Borrowings 4,146 2,720 1,360 - -
Other Liabilities 5,626 3,927 6,604 7,195 7,773
Total Common Equity 109,495 111,303 116,426 122,226 128,817
Total Liabilities and Equity 131,067 133,063 138,358 145,111 153,914

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AmFraser Securities Pte Ltd Thomson Medical Centre Ltd
CASHFLOW STATEMENT Adjusted Adjusted Forecast Forecast Forecast
In SGD '000 31-Aug-08 31-Aug-09 31-Aug-10 31-Aug-11 31-Aug-12
Profit before Tax 13,757 15,682 18,271 20,688 23,507
Write-back Depreciation 2,940 3,385 3,233 3,316 3,397
Interest income (157) (58) (180) (263) (391)
Interest expense 310 145 92 31 -
Other non-cash adjustments 238 421 - - -
Change in working capital (906) 2,792 (629) 1,088 1,371
Income taxes paid (2,151) (3,226) (3,456) (3,913) (4,446)
Cashflow from Operations 14,031 19,141 17,330 20,947 23,439

(Purchase) / Disposal of PPE (3,265) (5,329) (4,796) (4,796) (4,796)

Interest received 157 58 180 263 391

Debt raised / (repaid) (1,360) (1,360) (1,360) (1,360) -

Interest paid (331) (148) (92) (31) -

Beginning Cash 15,288 15,570 20,567 22,987 27,988

Ending Cash 15,570 20,567 22,987 27,988 35,607

Adjusted Adjusted Forecast Forecast Forecast

FINANCIAL RATIOS
31-Aug-08 31-Aug-09 31-Aug-10 31-Aug-11 31-Aug-12
Profitability
Gross Profit Margin 44.1% 43.2% 43.0% 43.0% 43.0%
EBITDA Margin 28.2% 28.5% 29.0% 28.8% 29.2%
Pre-tax Income to Op Rev Ratio 22.5% 22.6% 23.6% 23.9% 24.4%
Net Profit Margin 18.5% 18.9% 19.9% 20.1% 20.7%
ROE 10.2% 11.5% 12.8% 13.8% 14.9%
ROA 8.5% 9.6% 10.7% 11.5% 12.4%

Growth (Y-o-Y)
Revenue 15.1% 11.8% 10.6% 12.0% 10.5%
EBITDA 16.4% 12.9% 12.4% 11.3% 11.9%
Pre-tax Income 21.1% 14.0% 16.5% 13.2% 13.6%
Net Income 17.4% 14.0% 16.5% 13.2% 13.6%

Financial Structure
Networth Ratio 83.5% 83.6% 84.2% 84.3% 83.7%
Debt-to-equity Ratio 3.8% 2.4% 1.2% 0.0% 0.0%

Operational Efficiency
Acc Rec T/O (days) 29 21 27 29 29
Acc Payable T/O (days) 128 144 120 120 120
Inv T/O (days) 10 11 10 10 10
Cash Conversion Cycle (days) -88 -112 -83 -81 -81

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AmFraser Securities Pte Ltd Thomson Medical Centre Ltd
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