Thomson Medical Group Ltd – Credit View

Timothy Ang  |   03 Feb 2020  |    285 views

We take a NEUTRAL view on Thomson Medical as we expect increasing expenses and capex requirements to weigh on earnings moving forward.

Company Background

Thomson Medical Group Ltd (SGX: A50) is one of Asia’s largest healthcare players and is listed on the Mainboard of the SGX. The group specializes in obstetrics and gynaecology and has a market cap of about S$1.6bn.
 

Principle activities:

thomson medical centre

Healthcare: Thomson Medical Group owns Thomson Medical Pte Ltd (“TMPL”) and TMC Life Sciences Bhd (“TMCLS”). TMPL is one of Singapore’s leading provider of private healthcare services for women and children. It owns and operates the Thomson Medical Centre. TMCLS is a Bursa-listed healthcare group in Malaysia.


It owns and operates the Thomson Hospital Kota Damansara (a 200-bed hospital located in the golden triangle of Petaling Jaya), TMC Fertility Centre (assisted reproduction centre) and the developing Thomson Iskandar Medical Hub (three hospitals and a long-term care facility) in Iskandar Malaysia.

Thomson Iskandar Medical Hub

Vantage Bay Healthcare City: This site is currently a freehold waterfront land in Johor Bahru’s City Centre. Thomson Medical Group plans to build a regional-first integrated medical, education and wellness hub there.

 

This comprises a medical hub – three hospitals and a long-term care facility; a wellness hub providing therapeutic care and lifestyle related services, including age friendly assisted-living residences; and an education and training hub which will comprise a medical training institute and teaching hospital.

 

The Positives

Strong operating cash flows despite declining EBITDA margins

For the quarter ended 30 September 2019, revenue increased by 10.4% YoY to S$59.6mn. This was the result of higher patient loads, increased bill sizes and greater revenue intensity in the group’s hospitals and specialist clinics in Singapore and Malaysia. However, Thomson Medical’s EBITDA decreased 11.9% to S$13.4mn due to higher operating costs owing to cost inflation in goods, services and wages, and costs related to new clinics and the opening of Paragon Medical Centre.
 
We believe the cause of higher expenses was due to the group’s foray into new areas of specialties. Some examples of specialty clinics are the Thomson Breast Centre and Thomson Surgical Centre, recently added to Thomson Medical Centre in Singapore.
 
On the other hand, despite declining margins, the group still recorded higher cash flow from operations (S$24.1mn vs S$10.4mn for the 3Q19 and 3Q18 respectively), mainly from working capital improvement. This, on balance, shows the ability of Thomson Medical’s business model to generate healthy cash flows.
 

Strong cash position of c.S$122mn compared to short term debt of c.S$13mn, with quick ratio at 1.66x.

 

The Negatives

Capex requirements due to expansion plans likely to continue to weigh on interest coverage moving forward.

At present, the group’s main projects are adding a new wing at Thomson Hospital Kota Damansara with 400 additional beds and the Vantage Bay Healthcare City development.

The expected completion date for the completion of the Vantage Bay Healthcare City is beyond 2024. In particular, Thomson Iskandar Medical Hub, the main healthcare facility comprised of three hospitals and a long-term care facility, is expected to complete within 12 to 24 months after Bukit Chagar RTS station’s scheduled opening in end 2024. Bukit Chagar RTS station will be the terminus of the planned Johor Bahru–Singapore Rapid Transit System, allowing faster travel between Singapore and Johor Bahru.
 
In view of these ongoing projects, Thomson Medical’s EBITDA interest coverage declined steadily from 5.40x in 2017 to 2.16x in the last twelve months (LTM) 2019 due to narrowing EBITDA margins. Moreover, higher interest expenses (c.S$9.9mn in 2017 to c.S$25.3mn in LTM 2019) as a result of higher debt levels further exacerbated the margin decline. 

In view of the major ongoing projects expected to continue over the next few years, we expect capex and expenses to continue to weigh on margins and interest coverage level.
 

Additional Information

Former CEO of Cordlife Group, Dr Wong Chiang Yin (left), to replace Mr Roy Quek (right) as the group’s CEO and executive director starting from 1 February 2020


In recent news, Mr Roy Quek had quit in September as Thomson Medical’s CEO and non-executive director. The announcement stated that he was leaving to pursue other interests. After Mr Roy’s departure, Dr Wong Chiang Yin, an independent director of RHT Health Trust and a special adviser to Thomson Medical, will replace him as chief executive and executive director from 1 February 2020.

Dr Wong was the CEO of Mainboard-listed Cordlife from 2016 to 2018, and was also previously CEO and executive director of the hospital unit at Pantai Holdings, a subsidiary of Parkway Pantai Ltd. Parkway Pantai is a medical company based in Singapore and is Southeast Asia’s largest private healthcare provider.
 

Peter Lim holds a deemed interest of 88.57% in the Thomson Medical

In 2019, Peter Lim ranked the 10th richest person in Singapore by Forbes with a net worth of US$2.5 billion.
 

Comment

Although we note Thomson Medical’s ability to generate healthy positive cash flow from operations through its healthcare business, EBITDA margins have been declining and debt levels increasing as the group oversees expansion projects in Malaysia and new specialties in Singapore. We take a NEUTRAL view on Thomson Medical and expect capex to weigh on earnings moving forward.

Learn more about Thomson Medical bonds via TMGSP 4.050% 28/01/2025 (SGD) and TMGSP 4.800% 18/07/2022 (SGD) or by contacting our bond desk at bonds@phillip.com.sg.


Related Articles

Groupe BPCE 5% 10NC5 Tier 2 SGD

Groupe BPCE recently announced the issuance of its 10NC5 Tier 2 notes at a final price guidance of 5%.

Shawn Sng  |   27 Feb 2024

HSBC – Growth supported by higher rates

In FY202, HSBC growth was supported by higher rates and has reported a growth in its revenue of 30% YoY

Shawn Sng  |   23 Feb 2024

UBS Group 5.75% NC5.5 AT1 SGD

UBS Group recently announced the issuance of its NC5.5 Additional Tier 1 perpetual notes at 5.75%.

Shawn Sng  |   16 Feb 2024

Disclaimers


These commentaries are intended for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any person who may receive this document. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. Investors may wish to seek advice from a financial adviser before investing. In the event that investors choose not to seek advice from a financial adviser, they should consider whether the investment is suitable for them.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the "Research") contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com

?>