- Large group medical specialist in eye diseases that would affect everyone, sooner or later.
- Steady EPS growth of 16% for FY15E-17E, ex-M&As which will be a future earnings driver.
- Initiate with BUY & SGD0.52 TP, at 33x FY15E core EPS. Catalysts from potential accretive acquisitions.
ISEC is a group ophthalmology practice. Demand for eyecare can only grow owing to ageing populations, rising myopia and astigmatism among the young, and insufficient number of trained ophthalmologists.
Steady growth, ex-acquisitions
We forecast revenue CAGR of 28% and core EPS CAGR of 16% for FY15E-17E. FY14E profit to drop 13% YoY on start-up of two new centres, IPO expenses. Excluding these, core net profit to rise 14%. FY15E growth to be 13% as its Singapore centre breaks even. Forecasts do not include acquisitions, its biggest growth driver. Acquisition-led growth ISEC aspires to a regional stage, organically and by buying other practices. It aims to grow to a size where Singapore and Malaysia will only contribute 20% to revenue and profit in five years’ time, down from 100%. With its Singapore listing as a platform, we believe it should be able to acquire at EPS-accretive valuations. Risks: Key-man, MYR weakness One doctor in Singapore contributes ~50% to net profit. ISEC recognises this risk and has structured its management team to take this into account. Also, this risk should diminish as ISEC grows. Recent MYR weakness is another risk, but mitigated by high Singapore contributions for now.
Initiate with BUY, TP of SGD0.52
We have a TP of SGD0.52 or 33x FY15E EPS, a 10% premium to the 30.5x average for healthcare and eyecare peers in Singapore, Malaysia and China and on par with Singapore-listed healthcare valuation leader Q&M Dental’s 33x. We ascribe the premium for its strong potential for accretive acquisitions.
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