Singapore O&G Limited
Singapore O&G (SOG) first half results for 2017 was disappointing as it came 10% below UOBKH Research’s expectations with earnings falling by 6.4% year on year to $4.1 million. SOG’s stock price has since tumbled to $0.46 per share (as at 9:45 am, 16 Aug 2017) from a high of $0.72 after its share split in May 2017.
The weaker performance was mainly due to decline in the dermatology sector which came down by 9.4% year on year. “Softer medical tourism” with a decline in the number of overseas patients was the main cause.
Furthermore, staff costs also increased by 7.9% as SOG hired two new specialist medical practitioners and also hired more clinical staff. The group is also planning to hire four more paediatricians by 2018, but it should prop up earnings as the group expands.
However, in the short run, the hike in costs is likely to outrun the increase in earnings, and UOBKH Research estimates that it will take about four to five months for the group to cover and breakeven the costs of the new doctors.
On a brighter note, cancer segment of the group is also doing well with earnings before interest and tax (EBIT) growing by 80% year on year with a higher number of patients.
The hiring of Dr Lim Siew Kuan in May 2016 is also paying off as she is expected to offset her hiring cost by the end of 2017, and cancer segment is expected to be a driver of growth for the group in 2018.
UOBKH Research has advised that SOG is now attractively valued after the fall in share price despite its weaker financial performance as the stock is currently deemed to be oversold.
UOBKH Research has lowered its target price from $0.74 to $0.59 and maintains that at current share price the stock is worth buying because of its low price-to-earnings ratio of 22x, which is attractive as it is a 17% discount to competitors. (SOG’s PE ratio as at 9:45 am, 16 Aug 2017 is 24.93x according to Bloomberg)
Furthermore, UOBKH Research believes that the low share price is unwarranted especially since they are predicting a 2018 return on equity of 23% from SOG, as compared to 19% from its competitors, and a dividend yield of 3.8%.
Therefore, investors who are waiting for a chance to invest in the healthcare industry may consider taking a nibble at Singapore O&G Limited (SGX: 1D8) at its current low share price of $0.46 (as at 9:45 am, 16 Aug 2017).
Food Empire Holdings Limited
UOBKH Research is also keeping its eye on Food Empire that has just reported a “within expectations” results for second quarter of 2017 with net profit to equity holders rising by 93.7% at US$3.2 million due to a great increase in sales for the key markets.
Gross margin for Food Empire has also been increasing from 34.9% to 37% year on year because of higher operating leverage, and better foreign exchange rate with a stronger Russian Ruble with Russia accounting for 42% of its sales.
However, due to increased political tension between Russia and the United States with the latest news being the expulsion of US diplomats from Russia in July, uncertainties abound within the Russian market.
Currently, UOBKH Research views that the US’s change in focus to its relationship with North Korea might result in friendlier relations with Russia due to the need for strategic regional friendship. Therefore, the tensions and uncertainties might be eased for now.
Food Empire is also looking at expanding into other places out of its core markets (including Russia, Ukraine and Kazakhstan, etc.). It should be able to come up with a more balanced portfolio as evident from a growing percentage of its sales coming from Indochina and other markets, which is currently taking up 36.9% of total sales as compared to previous 32.9% in 2016.
UOBKH Research maintains their “BUY” call on Food Empire Holdings Limited (SGX: F03) with a lower target price of $0.87, which is in line with the average price to earnings ratio of 19x across the industry. Investors may want to take this opportunity to acquire some Food Empire shares at its current price of $0.64 (as at 9:45 am, 16 Aug 2017).
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