SG Small & Mid SG Small & Mid Cap Stock PicksCap Stock Picks

Edison Chen / Thai Wei Yingedisonchen@uobkayhian.com

weiying@uobkayhian.com

•3

• Stock CallsChina Aviation Oil (BUY/S$1.16/Target:S$1.56/ Upside: 34%)

– Rare monopoly on China’s jet fuel imports

– Second solid recurring income is from immensely profitable SPIA refueller

Singapore O&G (BUY/S$0.80/Target:S$1.01/ Upside: 26% )– Strong Cash flow to fund potential M&A

– Attractive dividend payout

Raffles Medical (BUY/S$1.59/Target: S$1.70/ Upside: 7% )– Multi-year growth strategy

– China angle with continue growth in home market

Data as at 13 June 16

China Aviation Oil Singapore Corp*As of 27 May 16 closing pr

(CAO SP/BUY/Target: S$1.56/Market Cap:S$890m*)

Rare monopoly on China’s jet fuel imports is growing source of recurring income (cost-plus business model).

Second solid recurring income is from immensely profitable SPIA refueller.

A proxy to China’s global aviation traffic boom: Jet fuel consumption to grow 7.9% CAGG.

Catalysts: Shanghai Disneyland, China’s push on general aviation.

Five-year plan to double profits with organic growth and M&As (US$230m net cash war chest).

Critical mass to bring benefits of cost reduction and arbitrage trading opportunities.

Data as at 27 May 16

Source: CAO, UOB Kay Hian

Business Model

Singapore O&G

Singapore O&G (S$0.80)

• Market Capitalization = S$190.7m

• 2016F EPS = 3.6 S cents

• 2016F P/E = 22.0X

• BUY Recommendation, Target Price: S$1.01

• Upside: 26.3%

Data as at 13 June 16

Business Model• Founded by three doctors with a track record of more than 10 years

• Has 8 physicians, comprising 5 O&G specialists 2 cancer specialists and 1 dermatologist

• Operates ten clinics in Singapore

Source: SOG, UOB Kay Hian

SOG

Obstetrics Gynecology Cancer-related Dermatology

Industry Outlook

42,185

42,232

39,720

42,663

39,654

37,967Live births

1.241.251.191.291.201.15TFR

5,5355,4705,3995,3125,1845,077Total population ('000)

201520142013201220112010

Source: Singstat

•O&G sector is a beneficiary of pro birth policies

• Stable growth in live births and population , 60% of birth delivery takes place in private hospital

•From 2012 to 2015, SOG recorded stable increase in the number of babies delivered over the past four years, growing its market share from 4.3% of private delivery market share in 2012 to 6.7% as of 2015.

Source: NPTD

Financials

0.2ppt37.037.2EBIT margin (%)

20.15.06.1EBIT

2.1ppt31.132.3Net margin (%)

25.74.25.3Net profit

21.213.516.4Revenue

yoy % chgFY14FY 15Year to 31 Dec (S$M)

Source: SOG, UOB Kay Hian

FY15 revenue and net profit grew 21.2% and 25.7% yoy respectively.

Revenue growth was stemmed from full-year contribution from its new cancer specialist clinics and increase in patient loads from the O&G segment

New business - Dermatology

• Acquired Dr Joyce Lim’s clinic in December 2015, with the newly consolidated practice now comprising of aesthetic dermatological procedures, dermatological and laser surgery as well as general skincare

• Could potentially contribute net profit of about S$2.5m,

• We see further upside from product development as well as cross selling from referrals.

Source: Joyce Lim clinic

Diversified business model

In c r e a s in g c o n t r ib u t io n f r o m n o n O & G s p e c ia l t ie s

9 9 %9 1 %

5 9 %

6 %

3 5 %

9 %1 %

0 %

1 0 %

2 0 %

3 0 %

4 0 %

5 0 %

6 0 %

7 0 %

8 0 %

9 0 %

1 0 0 %

2 0 1 4 2 0 1 5 2 0 1 6 F

Y e a r

%

D e rm a t o lo g yC a n c e rO & G

• Ramp up in non-O&G related specialties such as cancer-related and dermatology• Increasing contribution from non O&G specialties, with projected non O&G related

revenue to increase to c. 40%.

Source: SOG, UOB Kay Hian

Strong balance sheet

3.0

4.25.3

3.1

3.4

4.9

6.4

2.1

0

1

2

3

4

5

6

7

2012 2013 2014 2015

Net Profit Net Cash Generated From Operating Activities

4.66.4

11.3

24.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2012 2013 2014 2015

Operating cash flow, net profit Cash Balance

• Operating cash flow consistently positive, CAPEX is generally low

• Potential to fund future acquisitions as well as expanding business offerings to adjacent fields such as paediatrics. The group is also looking to diversify and grow its business base to include more corporate clients and medical travelers.

• Attractive dividend payout of up to 90%

Source: SOG, UOB Kay Hian

Peer comparison & Valuation..

Maintain BUY with a PE-based target price of S$0.96. We see potential forvaluation to expand if there are more accretive acquisitions or if contributions from thebusiness of Joyce Lim exceed estimates, given the scalability of the business and itsstrong branding. In our view, SOG is a compelling healthcare stock with an attractivecombination of growth in dividend yield and 3-year EPS CAGR of 24%. Maintain BUYwith a target price of S$1.01 (previously S$0.96), based on 24.4x 2017F PE.

Data as at 13 June 16

Raffles Medical

Raffles Medical (S$1.59)

• Market Capitalization = S$2752.4m

• 2016F EPS = 4.3 S cents

• 2016F P/E = 37.4X

• BUY Recommendation, Target Price: S$1.70

• Upside: 7%

Data as at 13 June 16

Business Model•Founded in 1976, Raffles Medical is a leading integrated privatehealthcare provider in Asia

•Operating medical facilities in thirteen cities in Singapore, China, Japan, Vietnam and Cambodia

•Staff strength of 2,500, including 360 physicians.

Source: Raffles Medical

Mayo Clinic tie-up

• Joined the Mayo Clinic Care Network in July 2015

• First Asian member of the Mayo Clinic Care Network

• Group’s physician have access to the latest Mayo Clinic’s resources

• Through information-sharing tools and services, physicians will collaborate with Mayo Clinic’s physicians, enabling patients to get answers to their medical questions while staying close to home.

Source: Raffles MedicalSource: Mayo Clinic

Expanding in home market

Source: Raffles Medical, AsiaOne, Straits Times

•Raffles Holland Village ( Targeted completion in June 2016)•Multi-disciplinary medical centre, where RMG is occupying 9,000sf on level•Owning the building allows RMG to manage its location better in the longer term

•Raffles Hospital Extension (Targeted completion in 2017)• 20 Storey high extension building next to Raffles Hospital •Expand existing services and develop new healthcare facilities

Venturing into ChinaShanghai hospital project on track.

• On 15 May 2015, the Group entered into a Joint Venture agreement with Shanghai LuJiaZui Group to build a new 400-bed international hospital inPudong Qiantan, Shanghai. On track and targeted for completion by 2H18, where 100 beds will likely come on stream upon opening.

• Attractive location at New Bund International Business District

• Ensuring quality through group practice model

Acquisition of ISOS Clinics in 2015

•10 clinics in China, Vietnam and Cambodia

• Pivotal to the upcoming launch of Shanghai Hospital in 2018 as it serves three important benefits.

1) Strategic location in China

2) Serves major MNCs as well as NGO members, giving RMG exposure to these client profiles through privileged access benefit plans.

3) Team of c.60 doctors in the ISOS network, this gives RMG access to a team of qualified and trained medical professionals in China.

Source: International SOS

Venturing into China

• Revenue increased 23% yoy, underpinned by increased patient load, greater patient medical needs and higher revenue contributed by newly acquired ISOS clinics

• Cost pressure remained high as key areas such as staff costs and inventory costs exceeded the pace of 1Q top line growth. However this is expected as the group’s acquisition in MCH is newly acquired

Source: Raffles Medical, UOB Kay Hian

Financials

(2.6)18.6 16.0 Operating margin

ppt chg1Q151Q16Margin (%)

27.5 48.3 61.6 Staff Costs

1.6 2.7 2.7 EPS (cents)

3.7 15.0 15.5 Net Profit

n.m.0.1 (0.3)Minority Interests

1.0 15.1 15.2 Profit after Tax

30.2 (2.9)(3.7)Tax

5.7 17.9 18.9 Pre-tax Profit

6.0 17.7 18.7 Operating Profit

23.0 95.0 116.9 Turnover

yoy% Chg1Q151Q16Year to Dec (S$m)

Data as at 13 June 16

Peer comparison & Valuation..

BUY as growth capacity remains intact and expansion plans on track. We arepositive on RMG’s long-term prospects and re-iterate BUY and DCF-based target price of S$1.70. We think its new capacity in China and Singapore will provide growth capacity for the next 5-10 years.

Data as at 13 June 16

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