• BUY ratings on both BIG and RMG
• Main risk stems from margin pressure
3QCY12 results roundup
During the recently concluded 3QCY12 results period, both healthcare
companies under our coverage continued to deliver YoY revenue and
core earnings growth. Biosensors International Group (BIG) reported
core PATMI which matched our estimates (although revenue missed),
while Raffles Medical Group’s (RMG) earnings came in a tad below our
expectations (but revenue was in line).
Both BIG and RMG also
generated healthy free cashflows of US$19.2m and S$13.1m, thus
ending the quarter with net cash of US$331.7m and S$68.7m,
respectively.
Like RMG for its defensive earnings
In light of the ongoing vagaries of the macroeconomic landscape
which includes the looming US ‘fiscal cliff’ and persistent eurozone
issues, we believe that RMG [BUY; FV: S$2.82] offers an investment
merit for investors given its high quality defensive earnings.
In our
view, RMG’s recent share price weakness is likely due to the overhang
over its application for the change of use of its commercial podium at
30 Bideford Road for medical clinics, which was rejected by URA.
Nevertheless, management is working closely with the relevant
authorities to address their concerns, and we are optimistic on both
parties reaching a resolution, which could provide a re-rating catalyst
for the stock.
Maintain OVERWEIGHT; BIG remains our preferred pick
We maintain OVERWEIGHT on the Healthcare Sector, as
fundamentals remain solid, although margin pressure from rising staff
costs (healthcare service providers) and price cuts (medical device
companies) remains as the main downside risk. We are still positive
on BIG [BUY; FV: S$1.69], which we retain as our preferred pick
within the sector.
With the stock trading at 11.0x FY14F PER (more
than 1.5 standard deviations below its average 3-year forward core
PER), we opine that the market has more than priced in concerns over
stent price cuts in certain countries which it is operating. BIG
continues to capture market share away from its competitors, which
we attribute to the superiority in its stent technology. BIG also
initiated its first ever share buybacks from 8 Nov 2012 (8.05m shares
purchased since at an average price of S$1.10). We believe that
management is sending a clear signal that it sees value at current
price levels. (Read Report)
Source : OCBC Research
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