Is Singapore Medical Group Still An Undervalued Gem? Or Trapped in Downward Spiral Bottomless Pit?

Singapore Medical Group (“SMG”) share price has been stuck in a whirlpool of S$0.300 range for many months ever since August 2019. It all started with an offer by the Korean Medical Group, CHA, to buy out substantial number of shares from Dr Beng and his management team at S$0.605 per share. To add insult to injury, while the share price was at a high of S$0.485 per share, SMG decided to place out to CHA a S$10Mil convertible loan with conversion rights at S$0.435. Many shareholders were outraged at the unfairness of no general offer being made to them as well as the value destruction of the convertible loan pegged to a low exercise price. As a result, the massive sell off of SMG stocks from S$0.485 to S$0.300 per share commenced. What a bloodbath it had been since then for the many investors who came in at the all-time high of S$0.485 and booking in unrealised/realised losses of 38.1%.

Is SMG still an undervalued gem?

The excellent quarterly financial results announcement speaks volume of the potential of SMG. I believe that the current dramatic plunge in share price is only a temporary situation given the good financial results. However, the main problem is how long will the prevailing low market share price situation persist? The next issue is while deploying capital into SMG and playing the waiting game, there has been a drought of dividends being paid out of SMG to loyal shareholders for their sacrifice. 

There is an opportunity cost in waiting for the sun to shine once again.  If share buybacks do not work, then SMG should try paying out dividends to try to revitalise the sluggish share price performance. On 2 July 2018, there has been an announcement by SMG with regard to the implementation of a formal dividend policy but since then, there has been no updates at all.

Emailed to senior management of SMG with regard to share price in doldrums as well as dividend policy.

Since August 2019, I have been dropping emails via the general “Contact Us” email but there was no reply at all from SMG with regard to my recommendations. Earlier this year, I decided to follow up again with a last ditch effort to get past the red tapes by informing the staff behind the “Contact Us” email that I may inform the Corporate Secretary of SMG to table an additional resolution into the upcoming AGM agenda for all shareholders to discuss about dividends declaration which may make the situation awkward for the directors (albeit not my intention) if the customer service staff continue to play the ignoring tactic and not escalate my email to their senior management team. 

I was pleasantly surprised when 2 days later, Ms Wong Sian Jing (CFO of SMG) actually replied to my email. Ms Wong re-affirmed that implementing a formal dividend policy is always part of the management plan. However, SMG is cautious on the right timing to formalise such policy given that the Group is still at net current liabilities position as at 30 September 2019. The main reason for the net current liabilities are primarily due to deferred considerations arising from the business acquisitions and the CHA convertible loan that is due in less than 12months. Her management team will continue to execute its growth strategies and will update shareholders on any material development including decision on dividend payout (if any) via SGX announcement. 

Target Price of S$0.605 and parting thoughts:

Over the past few months, I have decided to sell off part of my SMG shares and realised losses as I re-deployed my capital into income generating stocks in order to increase my recurring cash-flow. However, I am still holding on to 40,000 units of SMG shares as I am still bullish on the eventual realisation of its intrinsic value into its market pricing. The fair value target should be S$0.605 based on CHA Medical Group recently paid consideration for SMG shares as well as the low PE ratio relative to SMG industry peers. This represented a 100% potential upside based on the undervalued price of S$0.300 per share. As aforesaid mentioned, main challenge is no one is exactly sure how many months (or years) one have to wait for the share price to breakout of its current whirlpool. 

Please also see my previous articles relating to Singapore Medical Group:

1. The Enigmatic Case of Sing Medical Group- More Money Earned Lead to Lower Share Price

2. Hidden Gem with Explosive Growth- Potential Further Upside of 25% to 50% (Part 1)

3. Hidden Gem with Explosive Growth- Singapore Medical Group S$10Mil Shareholder's Loan for M&A (Part 2)

4. Will SingMedical Group Opt For Privatisation By Following The Footstep Of Thomson Medical Centre And Health Management International?