Singapore O&G(SINP)

The Macro

Each of Singapore O&G segments are correlated to various macro measures. The O&G, Pediatric, and Dermatology segments are correlated to birth rates which have been declining in Singapore. The cancer segment is the most promising segment as it’s correlated to the aging of the population which is a major trend not only affecting Singapore but most advanced nations in the world today. There are also more favorable big-picture trends that Singapore O&G can ride such as the strong currency fundamentals and the aging of the population.

Currency

Singapore’s currency, the Singapore Dollar, has been appreciating against the dollar for the better part of 40 years. 

This trend has been sustained due to two major factors: Singapore’s massive current account surpluses and an extremely undervalued currency on a PPP basis.

Singapore has maintained a very large current account surplus of over 10% of GDP since the late 80’s. This is beneficial for a currency due to massive inflows rather than outflows. I expect this trend to continue into the future as Singapore has large private savings and foreign assets that generate income inflows. Also, Singapore is a relatively safe country which you could consider a Switzerland of Southeast Asia which attracts a lot of foreign capital.

The second reason is currency undervaluation. 

Using the Economist Big Mac Index the Singapore dollar is 20% undervalued compared to the US Dollar. This has gone on for the past decade. An undervaluation of over 10% tends to encourage companies and arbitrageurs to try to take advantage of this by producing in Singapore or buying products from Singapore. Undervaluation tends to mean revert the longer term.

The large current account surplus and undervaluation of currency should be two factors continuing the appreciation of the Singapore Dollar against the US Dollar thus boosting the return that investments in Singapore can garner.

Aging Population

People are continuing to live longer while the birth rate decreases globally this is causing the world to age. And Singapore is no different. The proportion of residents 65 and older in Singapore has increased from 9% in 2010 to 15.2% in 2020. At the same time life expectancy at birth has increased in Singapore from 78 in 2000 to 83.9 in 2020.  As people age their health-related costs typically rise. Due to these factors healthcare inflation in Singapore is rising faster than actual inflation 2.3% healthcare inflation vs 1.48% regular inflation. Also at the same time, Health expenditures rose 4% annually due to more use of services not just price inflation. 

Singapore O&G Dermatology and Cancer segments are well capitalized to benefit from the aging population trend. Especially the Cancer segment. Cancer is a leading cause of death among the elderly in Singapore with 26% of deaths being cancer-related in 2020. That’s up from 22% in 2005. Specifically, Singapore O&G specializes in breast, cervical and colorectal cancer. Breast cancer is the most common form of cancer among women. 1 in 20 women will develop breast cancer in their lifetime, with 1700 new cases every year in Singapore, most common in women after 50. Cervical cancer is the 10th most common among women and there are 175 new cases every year in Singapore. Colorectal Cancer is the most common cancer in men and the second most common among women. There are over 1500 new cases of Colorectal cancer in Singapore every year, most common after the age of 50.

The Company

Singapore O&G has a number of things going for it including profitability, high returns on capital,  insider ownership, high revenue growth with room for expansion, an excellent balance sheet, and a low valuation.

Profitability

Comparing Singapore O&G FCF profit margin to other Singapore medical peers SINP is clearly well above the pack at 35% well above the average of 14%.

Company’s	3 YR AVG PM
SINP	35.12%
HEMC	3.72%
SMGI	17.25%
ISEC	20.92%
QMDT	12.23%
RAFG	9.20%
SINR	22.31%
CORD	17.08%
ASAI	26.67%
THOS	6.17%
IHHH	9.38%
AOXI	-9.18%
Average	14.18%

SINP profitability has also been remarkably stable. Over the past decade, profitability has averaged 30%.

Year	2020	2019	2018	2017	2016	2015	2014	2013	2012	Average
PM	31%	29%	38%	5%	33%	37%	34%	37%	23%	30%

This stability shows good management and the high profitability shows a good business. This Profitability should be sustainable due to the low number of doctors in Singapore and the regulator requirements to become a doctor and practitioner.

Return on Capital

High Profitability usually translates to a high Return on Capital. Compared to competitors SINP blows their peers out of the water. I use a return on assets formula minus cash on the balance sheet. SINP averaged over the last 3 years a 36% Return on Assets compared to the peer average of 8.5%.

Company	Return on Assets minus Cash
SINP	36.26%
HEMC	1.97%
SMGI	11.88%
ISEC	19.18%
QMDT	8.11%
RAFG	5.54%
SINR	-4.64%
CORD	7.15%
ASAI	17.99%
THOS	1.38%
IHHH	3.39%
AOXI	-5.58%
Average	8.55%

Year	2020	2019	2018	2017	2016	2015	2014	2013	2012	Average
ROA	0.36	0.38	0.35	0.05	0.29	1.77	1.27	1.56	1.46	.83

A return on assets of 36% is truly amazing; most companies only have a return on assets of 5-10%. The dropoff in return on assets from 2015 to 2016 is attributed to acquisitions. Acquisitions tend to be worse than organic growth on a return profile but considering after 2016 returns on assets were stable and acquisitions continued it means they have been able to acquire other clinics at good prices and even though 30% returns and lower than over 100%, 30% is still amazing. One minor detraction is that in 2019 there was a large write-down in the Pediatric business due to an assessment of cash-generating units. Due to declining revenue in the segment. Due to increasing competition(PG 130). Adding back such impairments would lower ROA to 25%.

Balance Sheet

High returns on capital or future growth can be hampered if a company has too much debt. This is not the case with SINP which has a very low debt-to-equity ratio and a ton of cash.

Company’s	D/E
SINP	0.344
HEMC	0.216
SMGI	0.237
ISEC	0.244
QMDT	1.261
RAFG	0.562
SINR	0.324
CORD	0.752
ASAI	0.219
THOS	1.625
IHHH	0.864
AOXI	0.364
Average	0.584

Most companies in Singapore are conservatively financed as the table above indicates the average is .584. In America, this ratio would be closer to 1-2. SINP comes in at .34 which is very low.

Singapore O&G Balance Sheet
Cash	35.514 Million
Total Assets	57.86 Million
Total Liabilities	14.818 Million

SINP’s debt is an illusion however as SINP has over twice as much cash as debt. This huge cash balance and low debt is a free option for SINP which can easily lever up and use their cash to acquire more companies.

Insider Ownership

Insiders own over 60% of the company with executive director Heng Tung Lan with 24%. This high insider ownership means that insiders are very incentivized to make this company work. The last insider buy was in 2018 at .39 cents a share. Part of Remuneration is based on NPAT and Revenue Growth(PG  118) which are good objectives.

Google Reviews

Financials are all well and good and tell part of the story but it’s important to try to see what the customer thinks of the company. I looked over each clinic to their google review to see what customers think. The average of all the clinics comes out to 4.6 stars which is quite good and means customers love the company and the financials are not just smoke and mirrors and are built on a solid base.

Singapore O&G Clinic Google Reviews

Clinic	Type	Google Review(As of 01/23/22)	Number of reviews
SOG – Christina Ong Clinic for Children and Gastroenterology	Pediatrics	5.0	15
SOG Clinic for Children (East)	Pediatrics	5.0	2
SOG Clinic for Children (Central)	Pediatrics	4.3	30
SOG – Petrina Wong Clinic for Children Respiratory and Sleep	Pediatrics	4.8	57
Joyce Lim Skin & Laser Clinic	Dermatology	4.1	70
SOG – HM Liew Skin & Laser Clinic	Dermatology	5.0	46
Dr Tan Chuan Chien – SOG – CC Tan Breast, Thyroid & General Surgery	Cancer	5.0	1
SOG – HL Sim Colorectal, Endoscopy & General Surgery	Cancer	5.0	1
SOG – Cindy Pang Clinic for Women & GynaeOncology	O&G	4.5	8
Dr Beh Suan Tiong (SOG – Beh Clinic For Women)	O&G	4.9	16
SOG – Choo Wan Ling Clinic for Women	O&G	4.4	17
SOG – Cindy Pang Clinic for Women & GynaeOncology	O&G	4.5	8
SOG – Clara Ong Clinic for Women	O&G	4.3	27
SOG – Heng Clinic for Women	O&G	4.8	16
SOG – KW Lee Clinic for Women	O&G	4.2	14
SOG – Natalie Chua Clinic For Women	O&G	4.7	54
SOG – SC Hong Clinic for Women	O&G	4.6	9

Growth and Market Size

The Hospital and Outpatient care market size in Singapore came out to around 19-21 Billion SGD in 2020 with over 2400 clinics and hospitals and over 4489 private doctors. Singapore O&G revenue for the same year was 40 Million SGD and they had 15 clinics and 15 doctors. Singapore O&G total market TAM isn’t necessarily the total spend and clinics in Singapore however, revenue is so small that high revenue growth should be sustainable for a long time as has been done in the past. 

Year	2020	2019	2018	2017	2016	2015	2014	2013	Average
Revenue	0.33%	14.65%	15.98%	4.30%	74.82%	21.07%	57.51%	6.17%	24.17%

Since Singapore O&G’s public debut they have averaged a 24% Revenue CAGR. 2020 revenue growth was slow due to the covid 19 pandemic. However, growth has continued in the first half of 2021 with 17% YOY Rev growth due to an acquisition and pent-up demand from medical procedures being postponed in 2020. 

Singapore O&G has a number of growth avenues both acquisition and organic. Their most promising segment is their cancer segment due to the demographic trend of an aging population. In their H1 2021 press release, they welcomed two new cancer-related doctors. This doubles their cancer doctors from 2-4. Also recently the company has acquired a postpartum confinement care service in Malaysia which signals the company’s intent to expand its business regionally. The population of Malaysia is 8 times the size of Singapore and is very close geographically and could expand the company’s market TAM dramatically. The remaining segments are all still growing fast as Singapore O&G has less than 6% market share in those categories.

The companies stated Growth objectives in their IPO were

1. Expand its business operations locally and regionally through, inter alia, joint ventures;
2. Make investments in healthcare professionals and synergistic businesses; and
3. Diversify and grow its patient base.

Valuation

SINP’s P/E ratio is clocking in around 10 which is quite low for a company growing at 24% CAGR. Using Graham’s formula to calculate a P/E ratio for a growth firm 8.5+2G=P/E Ratio. G equals growth, plugging in 24 into the equation you get a 57 PE ratio which is far higher than the current valuation. The implied growth rate currently is about 2% which is quite low.

Relative Valuation

Company Tickers	P/S	3yr AVG PM	P/E
SINP	3.22	32.73%	9.83
HEMC	1.58	3.72%	42.43
SMGI	1.63	17.25%	9.45
ISEC	4.97	20.92%	23.77
QMDT	4.19	12.23%	34.22
RAFG	4.28	9.20%	46.47
SINR	2.63	22.31%	11.78
CORD	1.87	17.08%	10.97
ASAI	2.87	26.67%	10.75
THOS	9.46	6.17%	153.21
IHHH	1.40	9.38%	14.93
AOXI	0.71	-9.18%	-7.68
Average	3.23	14.04%	20.02

Expected Return Calculation

Assumptions	Worst Case	Base Case	Best Case
Rev Per Share	.084	.084	.084
Rev Growth	5%	10%	15%
PM	25%	30%	35%
P/E	10	15	15
Current Price	.27	.27	.27
5yr Fwd Share Price	.27	.6	.88
Div Yield	6%	6%	6%
Share Price Appreciation	0%	17%	27%
Expected Return 5yr CAGR	6%	23%	33%

I calculated an expected return for Singapore O&G assuming a worst, base, and best-case scenario. In the worst case, I assume a 5% rev growth and a declining PM to 25% the company is currently paying a 6% div yield with no multiple expansion this will be the only return. Which is quite acceptable. In the best case, PM stays around the same, and rev growth continues at a bigger clip, and with multiple expansions, at a 15 level you will have a 33% CAGR. This doesn’t even include an extra currency appreciation return. The company also could grow faster if they lever up and deploy cash. There is also the extra option of further multiple expansion due to extra implied growth rates.

Risks

Singapore O&G contains several risks this includes

• Key Man Risk: The company only has 15 doctors with some of them getting older in age this presents a problem if they cannot replace someone who leaves resulting in a big loss in revenue.
• Acquisition Risk: Part of the growth strategy is to acquire new clinics. The risk in this is if they pay too much or if their initial assumptions were not correct. The Dermatology segment which they brought back in 2016 as a result of the purchase of J&L for 28 million has been a flop as revenue has declined every year after ownership. However, the purchase was only at 10 times the earnings which is cheap(PG 7 & 140). The company since has seemed to have learned from the failure and in the new segments of Pediatrics, they have done much more successfully.
• Malpractice Risk: Every doctor may screw-up on the job or do something unethical which could lead to lawsuits which for a small company would not be great. The one protection here would be the company’s large cash position.
• Service Quality: If service quality dips, revenue could be affected materially. Currently, google reviews of a 4.6 star blended rate is quite good.
• Decline in Birth Rate: The birth rate in Singapore and across the globe is on the decline. The company generates a significant portion of Revenue from delivering babies around 55%. Pediatric and dermatology are also correlated to this as well. The decline however is very slow so it can be managed and the government of Singapore has enacted various policies to try to reverse this decline. Plus the company’s share in these markets is quite small so the company still has room to grow. For example, Thompson Medical delivers 8000 babies a year compared to the company which only delivers around 2000 a year. Also, the company is actively looking to diversify revenue away from this for example the cancer segment.

These risks may explain the undervaluation of the company.

Reasons to sell

• The decline in births is faster than expected or the share in deliveries falls for a structural reason.
• A key doctor leaves thus creating a hole in revenue 
• A bad acquisition makes me lose trust in management
• The company levers up to much
• The company begins to trade at my base and best-case share prices before the forecast period is over and thus share prices become too rosy
• Something unforeseen happens such as a bad malpractice lawsuit.