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Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE) MCI (P) 118/10/2015 Ref. No.: SG2016_0122

Singapore O&G Ltd.

More than stork delivery SINGAPORE | HEALTHCARE | INITIATION

Gaining market share by increasing number of clinics, specialties and choices. Effects from newly acquired Dermatology and Aesthetic business to kick-in this year. Additional growth pillar (Paediatrics) by 2017. Initiate with “Buy” rating and SGD1.00 TP, implying a 25.4% upside. Investment Merits (a) Growth story. Growing organically and inorganically to gain market share and expand

client base. SOG started with only Obstetrics and Gynaecology (O&G) services in 2011, expanding from a team of two O&G specialists to five. It has subsequently added three cancer specialists (two in 2014 and one in 2016) and one skin specialist (in 2015) to its team. SOG has expanded from two clinics to 10 clinics in 6 locations. In Jul-16, it will add another clinic into its portfolio, totalling to 10 specialists operating from 11 clinics in 7 locations.

(b) Diversification empowering its resiliency and less O&G-reliant. Successful integration enables realisation of synergies and unlocking of value. SOG targets to add children healthcare services (Paediatrics) into its portfolio by 2017.

(c) Long term proposition in becoming a comprehensive female medicine and whole life provider, which could lock-in its female patient base for the duration of their lifespan.

(d) Increasing market share with supportive government initiatives and favourable macro backdrop.

(e) Experienced team of specialist medical practitioners. Most of its physicians have long and established track record of at least 10 years in their respective field.

(f) Conveniently-located clinics with most of its medical clinics located within major hospitals and are easily accessible by public transport.

(g) Strong financial position and clean balance sheet. Zero-debt with net cash position of S$24.2mn (vs. market capitalisation of S$191mn) as at 31 Dec-15.

Investment Risks (a) Domestic and regional competition. (b) Lease renewal and unable to obtain a suitable location. (c) Manpower risk. Key personnel risks, as the Group was highly dependent on three of its

specialist medical practitioners; and challenges to retain and expand its talent pool. (d) Potential dilution in shareholders’ equity and shareholdings if the Group issues new

shares to finance its acquisitions. Also, future sale post moratorium or issuance of a large number of shares may have a downward pressure on share price.

(e) Other risks: execution risks; single country risk; change of regulations and licensing requirements; liquidity risk as SOG is Catalist-listed; competition laws and regulations could limit growth; and occurrences of epidemics and pandemics may lower demand.

Investment Actions We think the stock has further upsides stemming from its 1) expansion plan backed by strong financials and clean balance sheet, and 2) growing customer base underpinned by favourable macro environment and experienced specialist team.

We initiate coverage on SOG with a “Buy” rating with a target price of S$1.00 based on estimated 3.55 cents FY16 EPS and 28.2x FY16F PER. This implies an upside of 25.4% (with dividends) from its last closing price.

17 June 2016

BUY (Initiate)LAST CLOSE PRICE

FORECAST DIV

TARGET PRICE

TOTAL RETURN

COMPANY DATA

O/S SHARES (M N) : 238

M ARKET CAP (USD mn / SGD mn) : 144 / 195

52 - WK HI/LO (SGD) : 0.85 / 0.62

3M Average Daily T/O (mn) : 0.08

MAJOR SHAREHOLDERS (%)

29.44%

Dr. Lee Keen Whye 18.88%

Dr. Beh Suan Tiong 10.15%

Dr. Lim Teng Ee Joyce 8.56%

Eric Choo 7.71%

7.71%

PRICE PERFORMANCE (%)

1M T H 3 M T H 1Y R

COM PANY 3.9 5.4 17.6

STI RETURN 1.44 (0.75) (13.48)

PRICE VS. STI

Source: B loomberg, PSR

KEY FINANCIALS

SGD M N F Y 14 F Y 15 F Y 16 F F Y 17F

Revenue 14 16 27 31

EBITDA 4 5 6 10

NPAT (adj.) 4 5 8 10

EPS (S Cents) 1.20 1.46 1.83 2.01

PER, x (adj.) 12.6 17.9 23.1 20.2

P /BV, x 4.5 4.0 7.6 7.1

DPS (S Cents) - 2.0 2.8 3.2

Div Yield, % 0% 4% 3% 4%

ROE, % 46% 30% 34% 36%

Source: Company Data, PSR est.

Valuation Method

P/E Multiple @ 28.2x

Soh Lin Sin (+65 6212 1847)

[email protected]

SGD 1.000

SGD 0.820

SGD 0.028

25.4%

Dr. Heng Tung Lan

Dr. Choo Wan Ling

0.45

0.55

0.65

0.75

0.85

0.95

Jun-15 Sep-15 Dec-15 Mar-16

SOG SP EQUITY FSSTI index

Page | 2 | PHILLIP SECURITIES RESEARCH (SINGAPORE)

SINGAPORE O&G LTD. INITIATION

Company Summary

Company Overview Singapore O&G (SOG) is a leading group of Specialist Medical Practitioners dedicated towards women’s health and wellness with a long and established track record in the Obstetrics and Gynaecology (O&G) field. Its goal is to provide holistic, comprehensive, effective, and affordable life-long healthcare services to women and children.

It specializes in pregnancy care and delivery, the female reproductive system, gynaecological and breast cancer, as well as skin and aesthetic treatments. It currently houses a team of physicians, comprising five O&G specialists, three cancer specialists, and one skin specialist.

The Group is based in Singapore, and operates 10 clinics in 6 different locations. Its clinics are conveniently-located in the central and east regions of Singapore.

(a) 2 clinics in Parkway East Medical Centre (b) 1 clinic in Paragon Medical Suites (c) 2 clinics in Gleneagles Medical Centre (d) 1 clinic in Thomson Medical Centre (e) 3 clinic in Mount Elizabeth Novena Specialist Centre (f) 1 clinic at Cassia Crescent

It mainly derives its revenue from the provision of O&G services, which includes general and ancillary surgical services, breast and gynaecological cancer treatments, and medication and supplements. Nonetheless, medication and supplements are not significant revenue generators or profit contributors. O&G services contributed 91% of its FY15 total revenue, while the remaining 9% are from cancer-related services. Nonetheless, we expect the contribution from cancer-related business segment to pick up, and its net profit margin to improve, as Dr. Radhika’s business turned profitable in 2H15.

Due to its O&G-focused business nature, its customer base comprises mainly individual patients. Management shared that, now, with the additional non-O&G services offered, it could tie up with corporate accounts to expand its customer base.

SOG was listed on the Singapore Exchange – Catalist board on 4th

Jun-15, with an offer price of SGD0.25.



Investment Thesis

1. Steady population growth provides a stable patient base As of Jun-15, Singapore has a total population of 5.5 million. According to the government White Paper published on 2013, Singapore’s total population of residents and non-residents in 2020 is projected to be between 5.8 and 6 million. By 2030, Singapore's total population could range between 6.5 and 6.9 million.

No doubt that these projections are subject to Singapore’s fertility trends, life expectancy, social and economic needs, and the global and regional environment, but the government is projecting the population to grow at a 15-year compounded annual growth rate (CAGR) of 1.12%-1.52%.

Figure 1:

0%

1%

2%

3%

4%

5%

6%

0

1,000

2,000

3,000

4,000

5,000

6,000

05 06 07 08 09 10 11 12 13 14 15

(Thousand)SG: Population Growth

Population Population Growth Rate (%)

Source: CEIC, PSR est.

Slowing but stable growth rate above 1%.

Figure 2:

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

10,000

20,000

30,000

40,000

50,000

60,000

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

SG Total Live BirthsT12M Total Live Births

%y-y T12M Total Live Births

Source: CEIC, PSR est.

Year of Dragon: 1988, 2000, 2012

21.4% y-y

8.4% y-y

7.6% y-y

Due to the predominantly ethnic-Chinese demography in Singapore, obstetrics services are seasonally higher in the Year of the Dragon, which is regarded by the Chinese as the most auspicious in the almanac.

Figure 3:

8.0

9.0

10.0

11.0

0.4

0.6

0.8

1.0

1.2

1.4

1.6

05 06 07 08 09 10 11 12 13 14 15

SG: Vital RatesGross Reproduction Rate: Per FemaleNet Reproduction Rate: Per FemaleFertility Rate: Per FemaleCrude Birth Rate: Per Population (RHS)

Source: CEIC, PSR

The vital rates in Singapore have remained relatively stable over the past 10 years.



Note:

Gross reproduction rate is the average number of daughters each female would have during her

reproductive years if she were to experience the age-specific fertility rates prevailing during the

period.

Net reproduction rate is the average number of daughters each female would have during her

reproductive years if she were to experience the age-specific fertility and mortality rates prevailing

during the period. It is a refinement of the gross reproduction rate, and is also the measure of

replacement of population.

Fertility rate is the average number of live-births each female would have during her reproductive

years if she were to experience the age-specific fertility rates prevailing during the period. It is derived

by aggregating the age-specific fertility rates of females in each of the reproductive ages for a specific

year.

Crude birth rate is the ratio of number of live-births per thousand population in a given year

Figure 4:

-0.4%

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

2.4%

2.8%

US JP SG CN ID MY TH

Population Growth (2005 vs 2014)

2005

2014

Source: CEIC, PSRSource: CEIC, PSR

Compared to developed countries, like US and Japan, as well as some of its neighbouring countries, Singapore has a relatively high population growth rate.

Figure 5:

0.0

0.5

1.0

1.5

2.0

2.5

3.0


Fertility Rate: Total Births per Woman (2005 vs 2014)

2005

2014

Source: CEIC, PSRSource: CEIC, PSR

And a relatively low but stable birth rate…

We may see Singapore following in Japan’s footsteps with an improved fertility rate, as Singapore government ramps up its policies and measures to create a supportive environment for Singaporeans to form families and raise children.

2. Change in social norms increase demand for O&G services A woman's age is the single most important factor affecting her fertility. As a woman ages, her likelihood of infertility rises. In addition, the risks of pregnancy and birth complications increase for older mothers.

The Singapore society is facing an ageing population issue, as well as experiencing a shift in values and norms. Women are often seen to be focused on establishing their careers in their youth, deferring marriage and thus leading to later conception.

These demographic factors should support the demand for O&G – (i) to seek fertility advice or assistance, and (ii) medical care for older mothers.



Figure 6: Increasing average age of brides in Singapore

24

25

26

27

28

29

05 06 07 08 09 10 11 12 13 14

SG: Median Age of Brides (First Marriages)

Source: CEIC

Figure 7: Shift towards later motherhood (after age 30)

0

20

40

60

80

100

120

15 - 19 20 -24 25 - 29 30 - 34 35 - 39 40 - 44 45 - 49

SG: Age-specific Fertility Rate (Per 1000 Female)

2005

2010

2015

Source: CEIC

Figure 8: Aging population

400 200 0 200 400

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-74

≥75

SG Population Pyramid2015

2005

Source: CEIC

21.9% of Total Population

21.2% of Total Population

Person ('000)

We expect the trend of late marriage to continue, given Singapore’s ageing population coupled with rising cost of living.

3. Rising consumer affluence within the region

Increased health awareness coupled with rising purchasing power within the Southeast Asian region, have buoyed demand for comprehensive and quality specialist healthcare services.

Singapore is a recognised regional medical hub which attracts many overseas patients annually. On the domestic front, we see preferences for private doctors over public doctors. The percentage of total live birth in private sector hospitals has been on a gradual upward trend since 2008, sustaining at above 58% level.

Figure 9:

0.1 0.1 0.1 0.1 0.1 0.2 0.1

23 23 23 2426 24 25

17 16 15 16 16

16 17

57%

58%

59%

60%

61%

62%

0

10

20

30

40

50

2008 2009 2010 2011 2012 2013 2014

(Thousands)

Preference for Private Hospitals Public Sector HospitalsPrivate Sector HospitalsOther LocationsPrivate Sector % Total Live Birth (RHS)

Source: Statistics Singapore, PSR



Figure 10 & 11: A glance at Private Sector vs Public Sector

Private Sector Public Sector

Comparison by Nature

Pros

offer a wider range of services

offer greater flexibility

potentially more experienced specialist medical practitioners

lower set charges and fees

access to select direct and indirect subsidies

Cons

- command a price premium - extremely fragmented, as many of the O&G

clinics in Singapore are sole proprietorships

- patients are generally not entitled to choose their consultants

- potentially more consultants may be younger and less experienced

- longer waiting times

Source: Company IPO Prospectus, PSR

Private Sector Public Sector

Competition by Service Offerings

O&G services Private O&G groups, such as Thomson Women’s Clinics, The Obstetricians and Gynaecology Centre, and sole practitioners

The O&G departments of public hospitals, such as KK Women’s and Children’s Hospital, National University Hospital and Singapore General Hospital

Polyclinics

Breast care and cancer related services

Private gynae-oncology groups, such as Thomson Women Cancer Centre

Private surgical clinics, such as general surgery department at Raffles Medical Hospital

Sole practitioners

The breast and cancer related departments of public hospitals, such as KK Women’s and Children’s Hospital, National University Hospital, Singapore General Hospital, the National Cancer Centre

Dermatology and skin care services

Private dermatology groups, such as Thomson Specialist Skin Centre

Private dermatology clinics, such as the general dermatology department at Raffles Medical Hospital

Sole practitioners

The dermatology departments of public hospitals, such as KK Women’s and Children’s Hospital, National University Hospital, Singapore General Hospital and the National Skin Centre

Source: Company IPO Prospectus, PSR

4. Supportive government initiatives to increase birth rate

In response to the increasing standard of living and growing needs in Singapore, the government has provided various supports to help parents in the areas of conception and delivery costs, and to further defray child-raising costs.

(a) Promoting birth or to boost the Total Fertility Rate (TFR)

Medisave Maternity Package

Medisave for Assisted Conception Procedures (ACP)

Co-Funding Assisted Reproduction Technology (ART) Treatment

(b) Defraying child-raising costs including healthcare costs

Enhanced Baby Bonus

Enhanced Medisave Grant for Newborns

Medishield Coverage for Congenital & Neonatal Conditions

Tax Reliefs & Rebate for Parents

Subsidies for Centre-Based Infant & Child Care

Foreign Domestic Worker Levy Concession



Figure 12:

-75%

-50%

-25%

0%

25%

50%

75%

100%

125%

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

SG: Government Expenditure on Health, Social and Family Development

%y-y T4Q Govt Expenditure on Health Development

%y-y T4Q Govt Expenditure on Social and Family Development

Source: CEIC, PSR

5. Market outlook for cancer services is positive Cancer is on the rise as growth notifications is accelerating. It is becoming an increasing public health problem globally. It affects all ages and socio-economic groups.

According to Ministry of Health Singapore, cancer is the number one cause of death in Singapore, accounting for 29.4% of the total death in 2014.

Access to effective, quality and affordable cancer services are highly sought-after Although breast cancer is 29.2% of diagnosed cases among females, but it only accounts for 17.6% of cancer-related deaths. This suggests that it is treatable, and early detection is necessary. And SOG provides both services of detection and treatment.

Figure 13: Ten most frequent cancers in females (%), 2010-2014

Female-specific cancers (i.e. breast cancer and gynaecological cancers) account for 44.4% of cancers among Singapore women.

Breast cancer is the most common cancer among females.



Figure 14: Risk of developing cancer by age 75 among females, 2010-2014

1 in every 15 female Singapore residents is likely to develop breast cancer before the age of 75.

Figure 15: Ten most frequent cancer deaths in females, 2010-2014

Note:

Crude rate (CR) refers to the number of cancer deaths divided by the mid-year general population

respectively.

Confidence interval (CI) is a range of values so defined that there is a specified probablity (in this case

is 95%) that the value of a parameter (in this case is the CR) lies within it.

Source: Trends in Cancer Incidence in Singapore 2010-2014, National Registry of Disease Office

Breast cancer is the most fatal cancer among females, accounting for 17.6% of cancer-related deaths females during the period of 2010-2014.

This also implies that, 21.1 in every 100,000 female Singapore residents, is likely to die due to breast cancer.

6. In tune with Asia’s burgeoning cosmetics and skin care industry

Dermatology market holds a high potential for growth, driven by:

(a) increasing number of people suffering from skin disorders The most common conditions in Singapore are: acne, cold sores, hair and scalp problems, eczema, nail problems, psoriasis, rashes and warts.

According to National Skin Centre, eczema affects 1 out of 10 persons at some time in their life, and it could occur at any age.

Combination of change of weather (rising heat and frequently hit by dry spells) and deteriorating air quality (due to haze and air pollution), could set the number of people diagnosed with skin issues to continue to increase.

(b) increasing awareness for aesthetic through social media, acceptance, and availability of treatments

According to an audit report on Beauty and Wellness Industry published by IRAS, there are more than 18,000 businesses in the Beauty and Wellness industry in Singapore. It cited a 2010 survey that more than 95% of Singaporeans spent more than $25 on beauty treatments each month while 53% spent between $25 and $49. And majority



of the survey respondents said that they would continue with this spending pattern and that they had no intention of cutting back on such expenses.

Gauging from the population in 2010, we estimate that the Beauty and Wellness services market size in Singapore was worth at least S$1.425bn.



Investment Merits

1. Growing market share The Group currently commands a market share of c.4% of total live birth in 2015. As mentioned earlier, private hospitals accounts for at least 58% of total live birth in Singapore. This implies a huge room for the Group to grow its market share.

Between 2012 and 2015, the number of deliveries by the Group grew at a compound annual growth rate (CAGR) of 9.5%. As at end-2015, it has delivered a total of 1,633 babies, implying one baby delivered by an SOG obstetrician every 5.4 hours. In long term, it aspires to reach 4,500 deliveries a year.

To gain more market share, the Group intends to:

(a) Extend its network island wide by establishing more access points (main focus in near term) Its SOG specialists currently operate from 9 clinics in 5 different locations: 8 centrally located clinics within major hospitals, namely Mt Elizabeth Novena

Medical Centre, Gleneagles Medical Centre, Parkway East Medical Centre, and Thomson Medical Centre.

A suburban clinic located at Cassia Crescent.

Another clinic in the pipeline would be Mt. Alvernia Medical Centre (target to commence in Jul-16). The Group has also expressed its interest in penetrating into suburban locations to enhance its reach. Nonetheless, this would very much depend on successful and suitable recruitments.

(b) Expand the number of specialties and choices By hiring more specialists, particularly in medical specialties it previously was unable to offer. For example, SOG has recruited two Cancer Specialists at end-2014 and acquired a skin care business in Dec-15. This year, SOG has recruited a new Breast Surgeon (joined in May-16).

It may venture into other specialist services like infertility and IVF services, child care services, and paediatrics including neonatology. It may also offer ancillary goods and services to patients, such as quality goods that are not easily available in Singapore. These may include a range of organic products, low allergy supplements and niche products.

It also aims to attract junior specialist medical practitioners with attractive value propositions – a ready patient pool, assistance with respect to base salary and lower set up costs. Younger specialist medical practitioners like Dr. Natalie Chua has benefited from spill over of patients from Dr. Heng, who has longer track record in the O&G field.

(c) Expand its customer base by being able to offer some of these services outside of Singapore The Group is open to overseas partnerships. Its IPO Prospectus stated its intention to set up overseas sales representative offices and/or establish a network of overseas sales agents in selected ASEAN countries and PRC. If this materialises, it could diversify and grow its patient base to include more corporate clients and medical travellers.

The Group also intends to customise and provide women’s healthcare packages targeted at corporate clients, to diversify its currently individual-clients-dominated customer base.



Figure 16:

0

500

1,000

1,500

2,000

12 13 14 15

Number of Deliveries by SOG

Source: Company

4-Yr CAGR at 9.5%

Figure 17:

2.7% 2.7%

3.5%3.9%

0%

1%

2%

3%

4%

5%

6%

0

1

2

3

4

5

6

12 13 14 15

O&G Strength and Market Share

Number of O&G specialist

SOG Market share

Source: Company

2. Diversification empowering its resiliency

The Group started off with only one business segment helmed by two O&G specialists. Over the years, it has subsequently expanded the number of specialties and choices offered.

(a) 1st Pillar: O&G Forms a stable base for SOG’s topline, but lower margin (net profit margin at c.30%) driven by volume. The demand for obstetrics services depends very much on domestic demand. Due to citizenship issues, it has lesser risk of patient outflow to overseas but it is also unlikely to see an influx of foreigners seeking obstetrics services in Singapore. Hence, we do not expect a huge jump in demand but it should be stable as per government’s projected population growth.

(b) 2nd Pillar: Breast and Cancer-related The Group’s margin driver (net profit margin at c.87%). It has a larger market base, catering to both local and foreign patients.

Considering that the two cancer specialists who joined SOG towards the end of 2014 have turned profitable in 2015, we expect the Group’s margins to improve from FY15.

(c) 3rd Pillar: Dermatology & Aesthetic Reap synergies of lateral integration between O&G & Dr. Joyce Lim’s businesses. Skin problems are common during pregnancy; hence, patients from the SOG clinics with skin problems can be referred to Dr. Joyce Lim. Meanwhile, Dr. Joyce Lim’s patients with hormonal, medical or surgical problems can be referred to SOG’s panel of doctors.

In addition, demand for its skin care products could ride on revolution of feminine beauty ideal and rising consumer affluence. These products could be sold across SOG’s various clinics.

(d) (Future) 4th Pillar: Paediatrics (target to commence in 2017) Lock-in the period of its female patient base for additional 16 years by providing healthcare services to new-borns, infants, children and adolescents (up to the age of 16).

Group revenue would continue to be stabilised by obstetrics, as the other pillars are subject to overseas competition. At the same time, the other pillars would diversify the risk of domestic demographic changes, and enable the Group to be less dependent on the domestic obstetrics services. The Group aims to achieve 25% revenue contribution from each of the four pillars.

This is also in line with the Group’s long term proposition of becoming a comprehensive female medicine and whole of life provider. The Group aims to lock-in the entire life span of its female patient base – by offering integrated long-term care



services and engaging them at every stage of their lives.

Figure 18:

Source: Company

3. Long and established track record Most of its medical clinics and specialist medical practitioners have a track record of more than 10 years in their respective field. Dr. Lee Keen Whye and Dr. Heng Tung Lan, each has more than 30 years’ experience in the O&G field.

Figure 19:

S/N Specialist Years of experience

O&G Specialists

1 Dr. Lee Keen Whye >30 years

2 Dr. Heng Tung Lan >30 years

3 Dr. Choo Wan Ling >10 years

4 Dr. Beh Suan TIong >20 years

5 Dr. Natalie Chua >10 years

6 Dr. Hong Sze Ching (starting in Jul-16) ~10 years

Breast and Cancer-related Specialists

1 Dr. Cindy Pang >10 years

2 Dr. Radhika Lakshmana >18 years

3 Dr. Lim Siew Kuan >10 years

Skin Specialist

1 Dr. Joyce Lim >20 years

Source: Company

4. Conveniently-located clinics and flexibility to choose hospitals



Convenience is very important for pregnant mothers, given the discomfort they experience particularly in the last term of pregnancy.

Most of SOG's clinics are located within major hospitals and are easily accessible by public transport. It also operates a medical clinic in a residential neighbourhood at Cassia Crescent. Meanwhile, its cancer treatment services are just as accessible, with locations at Gleneagles Medical Centre, Parkway East Medical Centre and Mount Elizabeth Novena Specialist Centre.

All of SOG’s O&G specialist medical practitioners are accredited to perform deliveries and O&G surgeries in the Parkway Group of Hospitals in Singapore, as well as Mount Alvernia Hospital, Thomson Medical Centre and all major private hospitals in Singapore. Meanwhile, breast and general surgeon, Dr. Radhika, is accredited to perform surgeries in all the Parkway Group of Hospitals, Mount Alvernia Hospital, Khoo Teck Phuat Hospital and Raffles Medical Hospital.

Obstetricians, who are operating from medical clinics which are not located in a hospital, could arrange for their patients to deliver their babies in any of the hospitals. In the event of the absence of any doctor, the Group has contingent referral plans in place to ensure the continuity of the treatment and service provided to its patients.

5. Strong financials and clean balance sheet In FY15, revenue grew at 21.2%, which translated to a 25.7% growth in its bottom line. On a 3-yr CAGR basis, revenue and earnings grew at 26.5% and 21.2% p.a., respectively.

Its net profit margin has been above 30% for the past four years. We believe that it is sustainable and its (i) long track record in O&G field, as well as (ii) specialized services in cancer-related and dermatology, could enable the Group to continue to demand for such premium.

Zero debt and cash rich. As at end-FY15, the Group is in a net cash position of S$24.2mn (accounts for 87.6% of its total assets). Its total liabilities stood at S$3.6mn, are mainly payables (45.5%) and tax liabilities (44.0%). The S$20mn war chest (cash less total liabilities) is sufficient to acquire five to six clinics (based on its range of historical CAPEX at S$200k to S$300k per deal), without raising any capital via debt or equity.



Financial Highlights

Figure 20:

Revenue, Gross and Net Profit Growth

Source: Company, PSR est.

6%

57%

21%

4%

36% 26%

8%

62%

21%

0%

10%

20%

30%

40%

50%

60%

70%

FY13 FY14 FY15

Revenue Gross Net profit

Figure 21:

Margins


85% 86% 89% 89%

37% 36%31% 33%

43% 45%39% 38%

0%

20%

40%

60%

80%

100%

FY12 FY13 FY14 FY15

Gross EBITDA Net profit

Improved margin – Streamlined processes to achieve synergies and cost effectiveness in FY14

Figure 22: Segment Revenue

Revenue by Segment

Source: Company

99%

1%

Obstetrics & Gynaecology

Cancer-related

FY2014

91%

9%

FY2015

The Group’s revenue is mainly derived from the provision of O&G services, which includes general and ancillary surgical services, breast and gynaecological cancer treatments, and medication and supplements. Towards end-FY15, the Group added another pillar of growth – dermatology and skin care.

Figure 23:

Cash and cash equivalents


0

10,000

20,000

30,000

FY12 FY13 FY14 FY15 FY16F FY17F

Figure 24:

ROA and ROE


46%

36%

22%

26%23%

37%

29%

19%

23%21%

15%

20%

25%

30%

35%

40%

45%

50%

FY13 FY14 FY15 FY16F FY17F

ROA ROE



Figure 25:

Employee Costs


33%

32%

36%

38%

28%

30%

32%

34%

36%

38%

40%

FY12 FY13 FY14 FY15

0

5

10

15

20

25No.r of Specialists No. of Clinic Staff

Employee costs % revenue



Potential Catalysts

1. Effects from previous recruitment drive to kick-in this year By end-FY16, we should see a full-year contribution from the newly acquired Dr. Joyce Lim’s Dermatology and Aesthetic businesses (in Dec-15); as well as additional revenue streams from a new Breast Surgeon (joined in May-16) and a new O&G specialist (expected to start in Jul-16).

2. Building market presence The new O&G specialist, Dr. Hong Sze Ching, will be operating from Mt. Alvernia Medical Centre, bringing the total number of clinics to 11 and its presence to 7 locations in Singapore. The Group has also expressed its interest in penetrating into suburban locations to enhance its reach.

In its IPO prospectus, the Group has indicated its interest to expand regionally in longer term. Although this is not its near term focus, Management noted that it would consider exploring the possibility of partnering with regional partners for referrals, or setting up overseas sales representative offices and/or establish a network of overseas sales agents, to attract more medical travellers, in selected ASEAN countries and China.

3. Venturing out of its comfort zone Intend to incorporate, partner or acquire medical ancillary services so that it could offer a more holistic approach to patients. This may include establishing more clinics or the acquisition of existing synergistic businesses such as provider of screening and imaging services.

Additional business segments provide SOG with new pillars of growth and cushion the adverse impact from possible transition to low fertility due to ideological change.

(a) Paediatrician – SOG aims to add children healthcare to the Group by 2017. SOG obstetricians have delivered thousands of babies over the last few years. In 2015 alone, it has registered 1,633 deliveries, and the number is expected to continue to grow. These babies could potentially form the patient pool for its new pillar of growth.

(b) Synergies between SOG and Dr. Joyce Lim – SOG is developing a stretch mark cream with Dr. Joyce Lim. Other formulation possibilities include a cream for pigmentation, safe for use during pregnancy.

Management noted that it would prefer to buy than build, when it ventures into unchartered waters. There are two methods, with the recruitment method preferred.

Recruitment of a consultant specialist from a restructured hospital

Recruitment not just shortens the latency period but also enables the Group to tap onto the target company’s existing patient pool. Its historical recruitment deals (see Figure 26) were completed through issuance of new SOG shares.

The Group targets latent period to be less than the market expectation of 1 year, i.e. to break even by the 4

th month and to turn profitable by the 6

th month post

acquisition. In the past, the Group has consistently managed to keeps latent period to 8

months.

Figure 26:

S/N Specialist Latent Period

1 Dr. Natalie Chua 0 month

2 Dr. Cindy Pang 4 months

3 Dr. Radhika Lakshmana 8 months

Source: Company



Acquisition strategy Management shared that it does not have specific acquisition guidelines to adhere to, and maintains flexibility in the method of financing. As mentioned earlier, SOG does not have any debt, and it is cash-rich.

There is also no specific range of P/E ratio, as long as it is capped at SOG’s P/E ratio at the point of acquisition. So far, only Dr. Joyce Lim Skin and Laser Clinic is acquired 53% by cash and 47% by shares, at an implied P/E ratio of c.11.5x. At SOG’s current P/E ratio of 30.7x, we will monitor the implied P/E ratio for subsequent deals, if the Group runs the risk of overpaying.

Forecast Assumptions

1. Total live birth and SOG’s market share We forecasted a 1% growth in Singapore’s total live birth where private sector hospitals continue to accounts for 60% of the total number of babies delivered.

We assumed SOG to recruit an additional O&G specialist each year for FY16F and FY17, bring the number of SOG specialist to 6 and 7 respectively.

As O&G services account for the largest portion of its revenue, the top line growth is expected to grow along with the increasing SOG specialists and number of deliveries.

Figure 27:

SG Total Live Birth and SOG's Market Share

Source: CEIC, Company, PSR est.

-7%

38%

12% 14%19%

-7%

6%0% 1% 1%

-20%

0%

20%

40%

60%

80%

0

500

1,000

1,500

2,000

2,500


No. of babies delivered by SOG%y-y No. of babies delivered by SOG%y-y SG Live Birth

Figure 28:

Revenue by Segment and Number of O&G Specialists


3 3

5 5

6

7

0

1

2

3

4

5

6

7

8

0

5,000

10,000

15,000

20,000

25,000


Obstetrics & Gynaecology

Cancer-related

Dermatology

O&G Specialist



2. Margins The Group improved its gross margin in FY14 via central procurement process and cost effectiveness program. We think that gross margin is sustainable at c.89% over FY16-17F.

Figure 29:

Margins


85% 86% 89% 89% 89% 89%

37% 36%31% 33% 31% 31%

0%

20%

40%

60%

80%

100%


Gross Net profit

3. Cost Employee costs makes up the largest portion of its operating expenses, at 68% to 74% of total expenses over the last four years. Nonetheless, SOG managed to retain employee costs below 40% of total revenue. Management shared that, this only forms one-third of their wages, as the remaining two-third are derived from the Group’s dividend.

We think that the high employee costs are inevitable, as the Group is required to offer an attractive remuneration package to incentivise and motivate its group of specialist medical practitioners, as well as to attract and retain talents.

The second highest expenses are administrative expenses, followed by operating lease costs.

Figure 30:

Costs % Revenue


0%

10%

20%

30%

40%

50%


Employee costs % revenue

Other expense % of revenue

Depreciation % revenue



Figure 31: Talent Crunch within SE Asia

0

2

4

6

8

10

12


Nurses and Midwives per 1000 People (last updated)

Source: CEIC, PSR

4. Working Capital Cycle We expect SOG to revert its working capital cycle structure as per FY14 structure in FY16-17F.

Usually, revenue is collected directly from the patients. Only under exceptional cases where the Group may leverage on the hospitals to collect delivery fees (not preferred as it will lead to slightly longer days of receivables).

Revenue is recognised upon the completion of services rendered with the exception of antenatal packages. Antenatal packages are collected upfront and the revenue is recognised on a monthly basis over the patient’s remaining pregnancy periods and up to the delivery of the child.

We assume no change in (i) patients’ payment structure, (ii) the Group’s inventory management, and (iii) credit terms with its suppliers and lessors.

Figure 32:

Working Capital Cycle


30

35

40

45

50

55

60

65


Inventory days Receivable days Payable days

5. Dividend Policy According to the IPO Prospectus, the Group does not have a fixed dividend policy, but has a 90% payout target. It made its maiden dividend of S$0.02 per share in FY15, which implied a 75.9% payout ratio.

Considering its active recruitment drive (two specialists in FY16, and Paediatrics in FY17), we expect a higher setup costs over FY16-17F. Cash rich, we expect SOG to continue to fund its capex internally and payout at least 80% of its earnings and to move towards the targeted 90% payout ratio.



Figure 33:

EPS and Dividend


75.9%80.0% 80.0%

0%

20%

40%

60%

80%

100%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

FY14 FY15 FY16F FY17F

EPS (Cents) DPS (Cents)Dividend payout ratio



Valuation

We are positive on the stock for its 1) expansion plan backed by strong financials and clean balance sheet, and 2) growing customer base underpinned by favourable macro environment and experienced specialist team.

SOG currently trades at a 30.7x FY15 PER, which is c.12% premium to its Singapore healthcare services peers’ 27.5x.

We applied a 20% discount to its peers’ average FY16F PER, considering SOG’s smaller operating scale and higher liquidity risk (Catalist listed). The derived 28.2x forward PER is close to its average YTD historical PER at 28.6x.

We initiate coverage on SOG with a “Buy” rating with a target price of S$1.00 based on estimated 3.55 cents FY16 EPS. This implies an upside of 25.4% (with dividends) from its last closing price.

Figure 34: Peer Comparison and Valuation Item

EPS FY16F 3.55

Simple Average P/E FY16F (Excl. SOG) 35.3

20% discount due to liquidity risk 20%

Actual P/E multiple used 28.2

Target price (S$) 1.00

FY16F dividends 0.03

Closing price 0.82

Potential upside 25.4%

Company

Bloomberg

Ticker

Mkt Cap

(SGD mn)

EV

(SGD mn)

EV/EBITDA

TTM

EV/EBITDA

FY1

EV/EBITDA

FY2

P/E

TTM

P/E

FY1

P/E

FY2 Net D/E (%) ROA (%) ROE (%) P/B

Singapore O&G Ltd SOG SP 195 171 21.6 16.5 18.9 30.7 17.9 23.1 Net Cash 25.1 29.8 7.4

Singapore

IHH Healthcare Bhd IHH SP 17,609 19,839 28.8 23.4 20.5 N/A 50.0 41.1 19.5 3.1 4.8 N/A

Raffles Medical Group Ltd RFMD SP 2,701 2,640 27.1 25.2 22.0 38.4 37.1 33.2 Net Cash 9.0 11.9 4.3

Talkmed Group Ltd TKMED SP 624 563 10.5 12.1 11.6 17.5 16.1 15.6 Net Cash 47.0 57.2 9.6

Q&M Dental Group Singapore Ltd QNM SP 578 608 27.7 20.1 16.9 44.0 36.3 30.2 13.5 6.3 13.5 6.3

Cordlife Group Ltd CLGL SP 333 259 41.6 24.9 20.9 9.4 49.4 40.2 61.8 19.4 44.3 2.6

ISEC Healthcare Ltd ISEC SP 157 132 15.6 11.3 9.7 43.2 22.9 20.0 Net Cash 5.3 5.8 3.0

International Healthway Corp IHC SP 91 436 10.4 N/A N/A 12.6 N/A N/A 154.2 1.1 3.3 0.4

Healthway Medical Corp Ltd HMED SP 78 94 23.0 N/A N/A N/A N/A N/A 8.2 0.7 0.9 0.4

Singapore Medical Group Ltd SMG SP 42 36 38.7 N/A N/A N/A N/A N/A Net Cash -2.3 -4.7 4.1

AsiaMedic Ltd AMAT SP 25 24 8.0 N/A N/A N/A N/A N/A Net Cash -8.2 -13.6 1.8

Simple Average (Excl. SOG) 23.1 19.5 16.9 27.5 35.3 30.0 51.4 8.1 12.3 3.6

Source: Bloomberg, Phillip Securities Research (Singapore) Estimates

Figure 35: Regional Peer Comparison

Company

Bloomberg

Ticker

Mkt Cap

(SGD mn)

EV

(SGD mn)

EV/EBITDA

TTM

EV/EBITDA

FY1

EV/EBITDA

FY2

P/E

TTM

P/E

FY1

P/E

FY2 Net D/E (%) ROA (%) ROE (%) P/B

India

Apollo Hospitals Enterprise Ltd APHS IN 3,657 4,093 26.4 21.1 17.5 55.0 43.6 33.3 56.0 4.7 10.0 5.3

Narayana Hrudayalaya Ltd NARH IN 1,307 1,349 34.3 27.1 22.1 334.8 109.7 66.3 23.5 1.4 2.3 7.3

Hong Kong

Phoenix Healthcare Group Co. Ltd 1515 HK 1,449 1,253 19.4 15.0 11.7 42.4 24.9 21.3 Net Cash 7.8 9.9 4.0

Harmonicare Medical Holdings 1509 HK 663 396 22.1 7.8 6.6 26.6 19.2 17.4 Net Cash 10.5 N/A 2.3

Thailand

Bangkok Dusit Medical Services Public Co. Ltd BDMS TB 14,130 15,158 26.9 26.4 23.3 45.8 41.2 35.5 43.5 8.2 15.3 6.6

Bumrungrad Hospital Public Co Ltd BH TB 5,097 4,978 28.1 22.3 19.8 38.7 36.0 31.9 Net Cash 16.0 27.0 9.7

Malaysia

KPJ Healthcare Bhd KPJ MK 1,477 1,909 16.3 14.5 12.9 33.5 30.3 25.9 70.8 3.6 9.4 3.0

IHH Healthcare Bhd IHH MK 17,348 19,577 28.8 23.1 20.2 52.7 49.2 40.5 19.5 3.1 4.8 2.4

Indonesia

Siloam International Hospitals Tbk SILO IJ 1,249 1,234 16.2 18.8 15.0 162.0 139.4 91.2 Net Cash 2.5 4.4 6.9

Mitra Keluarga Karyasehat Tbk PT MIKA IJ 3,791 3,534 47.1 40.9 34.3 66.2 56.1 49.7 Net Cash 19.3 23.1 11.7

Sarana Meditama Metropolitan Tbk SAME IJ 338 373 21.4 19.9 15.2 49.5 64.8 45.2 32.2 7.7 13.9 4.4

Australia

Healthscope Ltd HSO AU 4,794 6,007 14.4 14.6 13.1 25.0 25.3 22.4 41.6 4.5 7.7 2.0

Simple Average (Excl. SOG) 24.2 20.5 17.4 61.0 47.3 36.7 45.4 7.8 12.0 4.7

Source: Bloomberg, Phillip Securities Research (Singapore) Estimates



Figure 36: Historical PER

25

26

27

28

29

30

31

32

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16

YTD Historical PER

Source: Bloomberg, PSR est.

Average

+1 Std. Dev.

-1 Std. Dev.

Figure 37: Historical performance relative to various indices

0.35

0.45

0.55

0.65

0.75

0.85

Jun-15 Sep-15 Dec-15 Mar-16

1-Yr Historical Performance

Source: Bloomberg, PSR est.

Singapore O&G

STI

Catalist Index

STI Healthcare Index



Risks

1. Competition There are significant barriers to entry to the private O&G sector, as it takes approximately 6 years to become a fully registered doctor and a further 6 years to be trained and be accredited as an O&G specialist medical practitioner. In addition, a qualified O&G specialist medical practitioner must build up sufficient goodwill and clientele before starting a private practice.

(a) Domestic (particularly from the public hospitals) SOG sees KK Women’s and Children’s Hospital, which also specialises in Women and Children healthcare services, as its main competitor.

(b) Regional (particularly from neighbouring countries) From 1

st Mar-10, under certain terms and conditions set by Ministry of Health

(MOH), Singapore residents (Singaporeans and Singapore PRs) will be able to use their Medisave to pay for their medical expenses incurred in Malaysia. The scheme started with two providers, namely Health Management International (HMI) and Parkway Holdings Pte Ltd. According to MOH, from 2010 to 2013, there were about 580 Medisave claims for overseas electives, amounting to S$1.5 million. The majority of the claims were for deliveries.

Singaporeans and Singapore PRs who opt to deliver in Malaysia could expect savings of up to 50%, due to the stronger SGD against MYR. However, parents who want their new-borns to be Singapore citizens will have to bear the inconvenience by visiting the Singapore High Commission in Kuala Lumpur or the Singapore Consulate-General in Johor Bahru to register the birth of their babies.

2. Lease renewal and unable to obtain a suitable location at cost effective rental rates. All premises of its medical clinics are leased, leading to risk of relocation, increase in rental or not being able to renew the leases on favourable terms and conditions.

3. Key personnel risks, particularly on specialist medical practitioners.

According to the Group, the services of Dr. Lee Keen Whye, Dr. Heng Tung Lan, Dr. Beh Suan Tiong and Dr. Choo Wan Ling are integral to the development and business of the Group. Together, they contributed c.90% and c.93% of its FY13 and FY14 revenue, respectively. Any loss of the services of any of its key specialist medical practitioners without a suitable and timely replacement could materially and adversely affect the business, financial condition and results of its operations.

Also, facing talent crunch in the healthcare sector, there is risk where the Group could not attract and retain skilled and qualified healthcare professionals.

4. Dilution in shareholders’ equity and shareholdings.

Additional funds raised through issuance of new shares for future growth will dilute shareholders’ equity interests. Also, future sale post moratorium or issuance of a large number of shares may have a downward pressure on share price.

5. Other risks:

(a) Execution risks – relatively new brand name (incorporated on Jan-11). (b) Competition laws and regulations in Singapore may limit growth and subject the

Group to anti-trust and merger control. (c) Liquidity risk – Catalist listed. (d) Change of regulations and licensing requirements. (e) Outbreaks, occurrences of epidemics and pandemics may drive down demand

(e.g. Zika virus).



SWOT Analysis

Strengths High barrier to new entrant Supported by a team of strong and experienced specialist

medical practitioners Clinics strategically located and flexibility to choose

hospitals Strong financial position and clean balance sheet Ability to pass on cost to customers Diversified portfolio and industry resiliency

Weakness Key personnel risks Single country-dependent Relatively new company, shorter track record of

management and implementation strategy

Opportunities New clinics, new recruits, new business segment Supportive government’s policy to boost fertility Increasing cancer notifications Synergies with Dr. Joyce Lim’s business

Threats Domestic and regional competition Unable to secure strategic locations for medical clinics at

cost effective rental rates



APPENDIX

Company Background Singapore O&G (SOG) has a team of specialist medical practitioners in women’s healthcare with a long and established tract record in the Obstetrics and Gynaecology (“O&G”) field. SOG focuses on pregnancy care and delivery, the female reproductive system, and gynaecological and breast cancer, dermatology and skin care.

Figure 38: Company’s history

Year Corporate Development

6-Jan-11 Company incorporated. Founded by Dr. Lee Keen Whye, Dr. Heng Tung Land, and Dr. Victor

26-Aug-11 Renamed to Singapore O&G Pte Ltd.

May & Dec-12 Set up two clinics, SOG Breast Surgicare (now known as SOG-Radhika Breast & General

Surgicare) and SOG Clinic for Women

May-13 Set up a new branch of Heng Clinic for Women at Cassia Crescent

1-Aug-13 Dr. Natalie Chua was employed as an O&G specialist medical practitioner

11-Feb-14 As part of the Group restructuring, K W Lee Clinic and Heng Clinic for Women became part of

the Group.

Engaged both Dr. Lee Keen Whye and Dr. Heng Tung Lan as O&G specialist medical

practitioners.

Beh's Clinic for Women and ST Surgery became part of the Group.

Dr. Beh Suan Tiong joined the team of O&G specialist medical practitioners.

Choo Wan Ling Women's Clinic became part of the Group.

Dr. Choo Wan Ling joined the team of O&G specialist medical practitioners.

22-Sep-14 Incorporated SOG-Radhika Breast & General Surgicare and engaged Dr. Radhika

20-Oct-14 Incorporated SOG-Cindy Pang Clinic and engaged Dr. Cindy Pang.

18-May-15 Converted into a public company and changed its name to Singapore O&G Ltd.

4-Jun-15 Marks its trading debut on SGX

31-Dec-15 Completion of the proposed acquisition of the business and medical practices of JL Laser &

Surgery Centre Pte. Ltd., JL Esthetic Research Centre Pte. Ltd., and JL Dermatology Pte. Ltd.

Dr. Joyce Lim joins the Group.

29-Jan-16 Incorporated SOG-Natalie Chua Clinic for Women.

Incorporated SOG-SK Lim Breast & General Surgicare and engaged Dr. Lim Siew Kuan.

8-Apr-16 Incorporated SOG-SC Hong Clinic for Women and engaged Dr. Hong Sze Ching.

Source: Company

Figure 39: Company’s business

Source: Company FY15 Annual Report



Figure 40: 11 clinics, 7 Locations by Jul-16

Source: Company’s Presentation Slides

* Clinic at Mount Alvernia Hospital is expected to commence in Jul-16

Figure 41:

Footprint in SG FY11 FY12 FY13 FY14 FY15

Number of clinics 2 4 4 8 9

Location in SG 2 2 3 5 6

Staff strength 19 22 37 39

O&G specialist 2 3 3 5 5

Women cancer specialist 1 0 2 2

Skin specialist 0 0 0 1

Clinic staff 12 15 19 22

Finance, admin and marketing personnel 3 4 11 9




Group Structure

Figure 42: Group Structure as at 31 Dec-15

Source: Company FY15 Annual Report

Note:

On 29 Jan-16, SOG incorporated two wholly owned subsidiaries, SOG-Natalie Chua Clinic for Women Pte. Ltd., and SOG-SK Lim Breast & General Surgicare Pte. Ltd.

On 8 Apr-16, SOG incorporated a wholly-owned subsidiary, SOG-SC Hong Clinic for Women Pte. Ltd.

Board of Directors The Board adopted a policy of rotating the Chairmanship every two years so as to engage the Executive Directors, to ensure independence and to not to over burden a single Executive Director.

Dr. Heng Tung Lan took over as Executive Chairwoman for the next two years, in the recent AGM in 8

th Apr-16. After two years, it would then be followed by Dr. Beh Suan Tiong.

Position Age Working and Business Experience

Dr. Lee Keen Whye Executive Chairman

61 Graduated from the National University of Singapore qualifying with a MBBS, and

subsequently specialised in O&G.

Awarded both with a FRCOG from the Royal College of Obstetricians and Gynaecologists,

United Kingdom, and a FAMS from the National University of Singapore.

The Chairman of the Minimally Invasive Surgery Centre, Gleneagles Hospital (2001-2008)

The President of the OGSS (2003-2005)

The Chairman of Surgeons International Holdings Pte Ltd (2005-2010)

Founder member of the Asia-Pacific Association of Gynaecological Endoscopists (APAGE)

Associate of the Laser Vaginal Institute of Los Angeles, USA

Awarded the Singapore Armed Forces HQ Army Medical Services (National Servicemen

of the Year) Award in 1996

Awarded the Benjamin Henry Sheares Gold Medal by the OGSS in 2003

Dr. Heng Tung Lan Executive Director

58 The leading Consultant Obstetrician and Gynaecologist practicing in Parkway East

Medical Centre.

Graduated from the National University of Singapore qualifying with a Bachelor’s degree

in Medicine and Surgery, and subsequently specialised in O&G.

Awarded a MMed (O&G) and was admitted to the Academy of Medicine, Singapore.

Established private practice in Sep-1993

Delivered more than 755 babies in 2014, and 803 babies in 2015



Dr. Beh Suan Tiong Executive Director

52 Graduated from the National University of Singapore in 1987 with a MBBS, and

subsequently specialised in women’s healthcare.

A Member of the Royal College of Obstetricians and Gynaecologists, United Kingdom

Awarded a FAMS from the Academy of Medicine, Singapore

A Consultant Obstetrician and Gynaecologist at the Thomson Medical Centre

The first doctor recipient of the KK Service from the Heart Award

The past President of the OGSS

The past Treasurer of the College of O&G, Singapore

The Chairman of the Operating Room and ICU Committee of Thomson Medical Centre

A member of the medical advisory board of Thomson Medical Centre

The Chairman of the Gynaecology endoscopy Subsection

Part-time Senior Consultant of the Minimally Invasive Surgery Unit in the Department of

Obstetrics and Gynaecology of KK Women’s and Children’s Hospital.

Mr. Christopher Chong Meng Tak

Lead Independent Director

56 A partner and co-founder of ACH Investments Pte Ltd

Holds a Bachelor of Science degree in Economics (1st

Honours) from the University

College of Wales and a Master of Business Administration degree from the London

Business School

A member of the Institute of Chartered Accountants of Scotland, a Fellow of the

Australian Institute of CPAs, a Fellow of the Hong Kong Institute of Certified Public

Accountants, a Fellow of the Singapore Institute of Directors, a Fellow of the Australian

Institute of Company Directors and a master Stockbroker of the Securities and

Derivatives Industry Association of Australia

Has significant experience as a director of listed companies; has significant experience in

capital markets, securities law, corporate governance and corporate affairs

Was an Executive Director of UOB Kay Hian Holdings Ltd

Was a multi-award winning analyst and the Managing Director of HSBC Securities

(Singapore) Pte Ltd

An independent director of several listed companies, including ASL Marine Holdings Ltd

and Ying Li International Real Estate Limited on SGX-ST, and GLG Corp Ltd and Koon

Holdings Limited on the ASX

A director/trustee of several private companies, trusts and international funds

Mr. Chan Heng Toong

Independent Director

65 Has more than 30 years of experience in banking

Vice President of Citibank N.A. (1984-1988)

Vice President of American Express Bank (NY) (1988-1989)

Vice President of the corporate banking division of Overseas Union Bank Limited

(1989)

General Manager and Chief Executive Officer of Overseas Union Bank Limited

Singapore (Canada) (1990-1995)

Vice President of the corporate finance division in Overseas Union Bank Limited

(1995)

Director of United Overseas Bank Asia Limited (2002)

Managing Director of the investment banking division (corporate finance) in UOB

(2008-2009)

Head of Investment Banking in HK Bank (2010-2013)

Has been involved in the initial public offerings of more than 30 local and foreign

companies on the SGX-ST



Mr. Chooi Yee-Choong

Independent Director

53 Has more than 25 years in the airlines and tourism industry

Methods Analyst (1984) and Systems Analyst (1986) in Singapore Airlines Limited

Marketing Executive (1990) and Vice President (Commercial) (2000) of Silk Air

(Singapore) Private Limited

Head of Commercial of Jetstar Asia Airways Pte Ltd (2004)

Regional Director of Indonesia, Philippines, Australia, New Zealand, Brunei and Fiji

of Singapore Tourism Board (2009)

Chief Planning Officer of Jetstar Airways (2011)

Chief Commercial Officer (2012) and the Chief Executive Officer of TransAsia

Airways

Currently the Chief Executive Officer of Myanmar Airways International Co., Ltd.

(since 2015)

Source: Company

Key Management

Position Age Working and Business Experience

Dr. Ng Koon Keng Chief Executive Officer

55 The Group’s CEO since Aug-11

Holds a First Class Honours degree (BMSc.) in Pharmacology and obtained medical

degree from the University of Dundee (UK)

Has business development, management, marketing and publishing experience.

Started A-Vic Enterprises Pte. Ltd.

CEO of Surgeons International Holdings Pte. Ltd.

Served as a Medical Advisor to Red Carpet Medical

Director of the Orchard Surgery Centre Pte. Ltd.

CEO of Asiamedic Limited

Ms. Heng Tong Bwee

Chief Administrative Officer

60 The Group’s CAO since Nov-13

Holds a degree in Accountancy from the National University of Singapore

Internal Auditor in the People’s Association (1977-1981)

External Auditor in Foo Kon & Tan (now known as Foo Kon Tam LLP) (1981-1984)

Audit Manager at Harry Tan & Partners (1984-1989)

Director at Transview Decor Pte Ltd (1989-2013)

Director at A-Plan Management Pte Ltd (1990-2013)

Director and the Finance Manager at Heng Clinic for Women (Mar-05)

Mr. Eric Choo Financial Controller

35 The Group’s Financial Controller since Jun-14

Holds a Bachelor Business (Accountancy) degree from the Royal Melbourne Institute

of Technology

A non-practising member of the Institute of Singapore Chartered Accountants and

CPA Australia

Has over 13 years of experience in the accounting and finance sector

Accountant with Pacific Healthcare Holdings Ltd (2002)

Audit Senior Manager with KPMG Singapore

Has over 9 years of audit and assurance experience as an auditor in Singapore

and the United States (provided audit and assurance services to public

companies listed on the SGX-ST and stock exchanges in the USA, multi-national

corporations and government linked corporations in Singapore)

Source: Company



Financials

Income Statement Balance Sheet

Y/E Dec, SGD mn FY13 FY14 FY15 FY16F FY17F Y/E Dec, SGD mn FY13 FY14 FY15 FY16F FY17F

Revenue 8.6 13.5 16.4 27.3 31.3 ASSETS

EBITDA 3.8 5.2 6.3 10.3 11.9 PPE 0.4 0.6 0.7 0.8 1.0

Depreciation & Amortisation (0.1) (0.2) (0.2) (0.4) (0.5) Others 0.0 0.8 1.0 1.0 1.0

EBIT 3.7 5.0 6.1 9.9 11.4 Total non-current assets 0.4 1.4 1.7 1.8 2.0

Net Finance Inc/(Exp) 0.0 (0.0) 0.1 0.3 0.3 Accounts receivables 1.4 1.9 1.5 3.2 3.7

Profit before tax 3.7 5.0 6.2 10.2 11.7 Cash 6.4 11.3 24.2 24.7 26.4

Taxation (0.6) (0.8) (0.8) (1.7) (2.0) Inventories 0.2 0.2 0.3 0.4 0.5

Net profit before NCI 3.1 4.2 5.3 8.5 9.7 Others 0.0 0.0 0.0 0.0 0.0

Non-control l ing interest 0.0 0.0 0.0 0.0 0.0 Total current assets 8.0 13.4 26.0 28.4 30.6

Net profit, reported 3.1 4.2 5.3 8.5 9.7 Total Assets 8.4 14.9 27.6 30.2 32.5

LIABILITIES

Accounts payables 0.8 1.7 1.6 2.5 2.9

Short term loans 0.0 0.0 0.0 0.0 0.0

Others 0.9 1.2 1.9 1.9 1.9

Total current liabilities 1.7 3.0 3.5 4.4 4.8

Long term loans 0.0 0.0 0.0 0.0 0.0

Others 0.0 0.0 0.1 0.1 0.1

Total non-current liabilities 0.0 0.0 0.1 0.1 0.1

Per share data (SGD Cents) Total Liabilities 1.7 3.0 3.6 4.5 4.9

Y/E Dec FY13 FY14 FY15 FY16F FY17F

EPS, reported 2.79 2.67 3.55 4.06 EQUITY

DPS 0.00 2.03 2.84 3.25 Non-control l ing interests 0.0 0.0 0.0 0.0 0.0

BVPS 7.79 12.02 10.78 11.59 Shareholder Equity 6.8 11.9 24.0 25.7 27.6

Cash Flow Valuation Ratios

Y/E Dec, SGD mn FY13 FY14 FY15 FY16F FY17F Y/E Dec FY13 FY14 FY15 FY16F FY17F

CFO P/E (X), adj. 12.6 17.9 23.1 20.2

Profit before tax 3.7 5.0 6.2 10.2 11.7 P/B (X) 4.5 4.0 7.6 7.1

Depreciation & Amortisation 0.1 0.2 0.2 0.4 0.5 EV/EBITDA (X), adj. (0.0) 11.7 16.5 18.9 16.5

WC changes 0.0 0.1 0.2 (1.0) (0.2) Dividend Yield (%) 0.0% 0.0% 4.2% 3.5% 4.0%

Net finance Exp/(Inc) (0.0) 0.0 (0.1) (0.3) (0.3) Growth & Margins (%)

Tax pa id 0.0 (0.5) (0.2) (1.7) (2.0) Growth

Others (0.5) 0.1 0.1 0.0 0.0 Revenue 6.5% 56.8% 21.2% 66.3% 14.7%

Cashflow from ops 3.4 4.9 6.4 7.6 9.7 EBITDA 9.7% 35.9% 20.4% 64.3% 14.7%

CFI EBIT 8.6% 35.5% 20.1% 64.1% 14.7%

CAPEX, net 0.0 (0.4) (0.3) (0.5) (0.6) Net profi t, adj. 4.0% 36.1% 25.7% 58.6% 14.3%

Others (0.2) 2.5 0.0 0.3 0.3 Margins

Cashflow from investments (0.2) 2.1 (0.3) (0.3) (0.4) EBITDA margin 44.5% 38.6% 38.4% 37.9% 37.9%

CFF EBIT margin 43.0% 37.2% 36.9% 36.4% 36.4%

Share i ssuance, net 0.0 0.0 10.2 0.0 0.0 Net profi t margin 36.1% 31.4% 32.5% 31.0% 30.9%

Loans , net of repayments 0.0 (0.0) 0.0 0.0 0.0 Key Ratios

Dividends 0.0 (2.2) (3.4) (6.8) (7.7) ROE (%) 53.7% 45.6% 29.8% 34.1% 36.3%

Others (1.3) (0.0) 0.0 0.0 0.0 ROA (%) 43.7% 36.5% 25.1% 29.3% 30.9%

Cashflow from financing (1.3) (2.2) 6.8 (6.8) (7.7)

Net change in cash 1.8 4.9 12.9 0.5 1.6 Net Debt / (Cash) (6.4) (11.3) (24.2) (24.7) (26.4)

CCE, end 6.4 11.3 24.2 24.7 26.4 Net Gearing (X) Net Cash Net Cash Net Cash Net Cash Net Cash

Source: Company, Phi l l ip Securi ties Research (Singapore) Estimates

*Forward multiples & yields based on current market price; his torica l multiples & yields based on his torica l market price.



Total Returns Recommendation Rating> +20% Buy 1+5% to +20% Accumulate 2-5% to +5% Neutra l 3-5% to -20% Reduce 4<-20% Sel l 5

We do not base our recommendations entirely on the above quanti tative

return bands . We cons ider qual i tative factors l ike (but not l imited to) a s tock's

ri sk reward profi le, market sentiment, recent rate of share price appreciation,

presence or absence of s tock price catalysts , and speculative undertones

surrounding the s tock, before making our fina l recommendation

Ratings History

PSR Rating System

Remarks

1 2 3 4 5

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

Jun-15

Sep-1

5

Dec-15

Mar-16

Jun-16

Sep-1

6

Dec-16

Source: Bloomberg, PSR

Market Price

Target Price



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Research Operations Officer

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Consumer | Healthcare Property | Infrastructure Macro Soh Lin Sin - [email protected] Peter Ng - [email protected] Pei Sai Teng - [email protected] Transport | REITs (Industrial) REITs (Commercial, Retail, Healthcare) | Property Technical Analysis

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Dehong Tan - [email protected] Jeremy Ng - [email protected]

Banking and Finance US Equity Oil & Gas | Energy Jeremy Teong - [email protected] Ho Kang Wei - [email protected] Chen Guangzhi – [email protected]

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