• We initiate coverage on Asian Healthcare Specialists (AHS) (please refer to “Money Talk: Ageing Population Giving Orthopaedic Player A Leg-Up” dated 11 Jul 18 for full report).
• Niche player catering to an ageing population. With four clinics operating under “The Orthopaedic Centre” brand, AHS offers a comprehensive suite of orthopaedic, trauma and sport services. AHS’ team of senior specialists has 15-26 years of clinical experience. Orthopaedic disorders are typically associated with old age and Singapore’s well-insured ageing population is supporting the development of this burgeoning industry. AHS is wellpositioned to tap the surge in demand for orthopaedic services and serves as a proxy to ride on the industry’s growth story.
• Harnessing advanced techniques as a competitive advantage. AHS provides in-depth subspecialty services through the use of advanced techniques and technologies to perform complex revision surgery. The group’s cutting-edge capabilities tend to translate into minimal or singular competition for certain product offerings such as the ROBODOC system. The group is one of only two users of the ROBODOC system and is the sole practitioner within the private healthcare landscape.
• Network effects reinforce eco-system and attract specialists. The congregation of wellestablished subspecialty senior specialists creates a closed-loop of complementary services while public seminars attended by senior specialists serve to market AHS’ positioning. Within the span of five years, AHS quadrupled its service locations from one clinic to four. The heightened visibility also presents AHS with acquisition and partnership opportunities as it expands complementary product offerings. AHS’ founders are well-incentivised with clear alignment with shareholder interest, enabling AHS to scale up aggressively while keeping in mind minority shareholders’ interest.
• Robust balance sheet signals potential for higher dividends. Operating with an assetlight model, the current set-up requires relatively lower set-up costs and maintenance expenditure. With zero debt and low capex requirements, substantial portions of cash flow are freed up for distribution. The group has already highlighted its intention to pay out not less than 50% of net profit attributable to shareholders for FY18 and FY19. We estimate dividend yield of 3.5% in FY19.
• Initiate coverage with a BUY and PE-based target price of S$0.33, implying 37.5% upside. We value AHS at S$95.1m or S$0.33/share, based on peers’ average of 19.4x 2019F PE. Though smaller in scale, AHS had exploited its efficient use of resources to post strong earning margins. With a lean structure and focus on advanced techniques, AHS is a winner in this rapidly growing space. AHS is currently trading at undemanding valuations of 14.2x FY19F PE with a forecasted net profit CAGR of 7.0% in 2017-20. There is potential upside if there is accretive M&A.
Source : UOB KayHian Research