Following the first part of our 6 Small Caps That Can Bump Up Your Year-End Bonus series, we continue with three more small caps that could bump up your year-end bonus with sizeable investment returns.
1. Singapore Medical Group
Following Singapore Medical Group’s (SMG) successful turnaround after a series of struggles and reporting robust growth, it attracted attention from local research houses, particularly DBS Research.
SMG is a private specialist and primary healthcare provider with a network of more than 20 medical specialties, based primarily in Singapore.
Post its business review in 2013 and appointment of current CEO, Dr Beng Teck Liang, SMG has embarked on several acquisitions and operational initiatives.
SMG’s successful M&As bringing back robust growth
Lifescan imaging – SMG’s Lifescan Imaging has started to contribute profitably to SMG’s bottom line since 2H16, post the acquisition of several loss-making entities.
DBS Research forecasts that Lifescan Imaging will continue to add favourably to SMG’s bottom line in FY2017 for the first full-year of its contribution.
Diagnostic Business – SMG has been scaling up its Diagnostics business by expanding into a new 5,500-sqft facility in Novena. Margin expansion is to be expected at SMG’s new facility at Novena Medical.
O&G, Paediatrics – Last year, SMG announced three acquisitions, including six O&G clinics (under the Astra Women Specialists arm) and three separate paediatric clinics.
This was SMG’s first foray into a new business vertical. Moving forward, SMG has plans to grow its O&G and Paediatrics segments by recruiting more specialists and opening new clinics.
Overseas Expansion – Ciputra eye JV clinic in Jakarta is showing signs of growth and profitability year-to-date in 2017.
In Vietnam, SMG has started to execute on its growth initiatives at its two 15,000-sqft clinics in Ho Chi Minh and hired a paediatric consultant to spearhead growth initiatives at its clinic in Careplus Vietnam.
DBS Research: Singapore Medical Group (SGX: 5OT) – BUY; $0.75
2. Amara Holdings
Management: occupancy rate to reach higher level
In terms of its operational performance, RHB Research notes that occupancy rate at Amara Singapore remains high at 89.1%.
Amara’s management believes that Amara Singapore’s occupancy rate in 4Q17 could even exceed the occupancy rate achieved during 9M17, considering new hotel room supply is low.
According to Business Times, only 266 new hotel rooms are expected to be added in 2018, compared to 3,714 in 2017. The lower projected supply could help raise 2018 average room rate.
Preparing for Amara Signature Shanghai
Amara recently reported a net profit of $3.2 million in 3Q17, down 20% year-on-year but mainly because of an increase in start-up costs for the upcoming Amara Signature Shanghai hotel.
However, management is expecting Amara Signature Shanghai to begin operating in Dec 2017, a positive sign to RHB Research as it will help Amara drive revenue for 2018.
RHB Research expects 2018F net profit to expand by 35% from higher Singapore average room rate and a full 12-month contribution from Amara Signature Shanghai.
Significantly undervalued balance sheet
One major reason to invest in Amara, in RHB Research’s opinion, is its significantly undervalued balance sheet. Amara’s balance sheet currently only reflects its hotel valuation at cost.
This means that there are several significant valuation upsides for its hotels, such as Amara Singapore, Amara Sanctuary Resort Sentosa, and Amara Signature Shanghai.
Factoring in the unrealised valuation upsides, Amara has an RNAV of $1.36 per share, giving Amara a P/RNAV of 0.41x. RHB Research values Amara at $0.88 by pegging valuation to P/RNAV of 0.65x.
RHB Research: Amara Holdings Limited (SGX:A34) – BUY; $0.88
3. Spackman Entertainment Group
After a series of political events involving South Korea’s deployment of US’ Terminal High Altitude Area Defence (THAAD) missile defence system, the Chinese started boycotting Hallyu entertainment.
However, there are noticeable signs that China is welcoming Hallyu entertainment once again.
Furthermore, RHB Research believes this will further enable partnerships between China and Korean media companies, especially when it comes to movies.
RHB Research also conjecture that China companies could resume their acquisition sprees in targeting Korean content producers and could even be a potentially attractive M&A target for Chinese firms.
RHB Research expects Spackman to acquire more related businesses that would add to its recurring income, part of the management’s effort to reshape its business model and diversify its revenue stream.
With its share price having fallen sharply, it is now at an attractive level for investors.
RHB Research: Spackman Entertainment Group Limited (SGX: 40E) – BUY; TP $0.20