Singapore Medical Group ("SMG") just announced another set of excellent financial results for FY2019. Its revenue rises 11.3% relative to prior year to a record S$94.7Mil driven by growth across all business segments. SMG also reported a 5.7% increase in net profits to a record S$13.6Mil. However, its share price performance for the whole year was disastrous as it plummeted from an all time high of S$0.490 per share to a low of S$0.0.275 per share range despite the excellent performance of a few years for no apparent good reason. During the year, directors also sold some of their stakes to the strategic Korean Medical Group CHA for S$0.605 per share. The current share price of S$0.310 thus reflect a massive discount to its fair value using the S$0.605 as benchmark and a 100% potential upside.
The only reason that I can think of for the poor share price performance may be attributed to investor fatigue and the perceived unfairness by retail investors in terms of the recent capital raising exercise using convertible loans at S$0.423 per new shares and sales of shares to CHA at S$0.605 per share which is only opened to the senior management staff.
1. Announcement of Dividend Policy-Finally!
During my last posting on SMG, I have mentioned that I have written in to the senior management team of SMG for them to seriously consider the immediate roll out of a dividend policy to support the undervalued share price. I think that many shareholders may also have voiced out the same thoughts. I am glad that the Board of Directors listened to shareholders and decided to roll out a formal dividend policy to reward shareholders.
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| Dividend Policy announced on 24 Feb 2020 |
For long term investors, the dividend policy which endeavors to pay out at least 20% of yearly earnings, should be rewarding enough to stop the relentless dumping of SMG shares by existing shareholders. At a price of S$0.310, the current payout of S$0.008 per share translates to a 2.58% dividend yield while the remaining earnings is ploughed back into the SMG business for further regional investment and expansion.
2. How "undervalued" is SMG?
Compared to other medical groups out there, SMG is severely undervalued. The P/E ratio of most medical group such as Raffles Medical Group, Q&M Dental Group & ISEC Healthcare is around 25 times. SMG P/E ratio stands at a mere 12.6 times only- please refer to below chart on "Peer Comparisons".
3. Summary
With the introduction of a formal dividend policy, shareholders can patiently wait on the sideline to receive dividends while waiting for price to recover to its fair valuation of S$0.605 that is, a potential 50% to 100% upside of capital gain over the next few years.
Note: I have started to re-accumulate shares in SMG due to the introduction of the dividend payout policy. Currently holding on to 60,000 shares with plans to increase it further. But the headache now is opportunities for other higher dividend yield stocks are opening up in view of the COVID-19 worldwide outbreak.
Note: I have started to re-accumulate shares in SMG due to the introduction of the dividend payout policy. Currently holding on to 60,000 shares with plans to increase it further. But the headache now is opportunities for other higher dividend yield stocks are opening up in view of the COVID-19 worldwide outbreak.
Please also see my previous postings on SMG:
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