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Singapore Medical Group – Strengthening Chart Spotted

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At the time of writing this write-up, SMG was trading +0.005 to $0.430, day range 0.425 – 0.430. I have observed some strengthening in the chart.

Some interesting observations on SMG

a) Chart seems to be strengthening

Based on Chart 1 below, SMG seems to have breached the near term downtrend line established since Mar 2018. Today is T+7 of the sharp upmove dated 31 January 2019 thus, I guess those contra players (who plan to contra and not hold the stock) have already exited. Indicators such as OBV, RSI and MACD are strengthening. ADX was 34.5 on 12 February 2019 amid postively placed Dis, indicative of a trend. Except for 200D SMA and 200D EMA, other EMAs are trending higher with a couple of golden cross formations being formed.

My personal view is that SMG’s chart will turn more bullish if it can make a sustained close above its 200D EMA and 200D SMA (approxumaetly around $0.435-0.440) with volume expansion.

Near term supports: $0.410 – 0.420 / 0.400

Near term resistances: $0.430 – 0.440 / 0.460 / 0.475 – 0.480

Chart 1: SMG chart seems to strengthen

 chart1
Source: InvestingNote 13 February 2019

b) Cheap valuations relative to peers

Based on Bloomberg, SMG is trading at approximately 13 times and 14 times forward-FY19 and forward-FY18 earnings respective. Comparatively, sector average is about 22 times FY19F price-to-earnings and 24 times FY18F price-to-earnings;

c) Low On A One Year Basis

Besides trading at lower valuations vis-a-vis peers, SMG is near the lower end of its one year price range $0.380 – 0.580;

d) May have a formal dividend policy and share buy-back mandate in FY19F

Based on SMG’s 3Q18 results, management mentioned that it may implement a formal dividend policy in FY19 and a share buy-back mandate, subject to all necessary approvals and compliance. This is done so as to enhance shareholder value;

e) May Be A Beneficiary Of Singapore Budget

Based on a Reuters’ article dated 11 February 2019, Singapore has the fastest aging population in the world after South Korea. Coupled with our lengthening life expectancy, healthcare costs are likely to go up, boding well for healthcare providers;

g) Positive Consensus

With refence to Figure 1 below, analysts polled by Bloomberg are giving target prices for SMG ranging from $0.560 – 0.740.

Figure 1: Target prices range from $0.560 – 0.740

figure2
Source: Bloomberg

As usual, for any stock, besides market risk, there are many risks to be aware of. Examples of risks include (but not limited) to the following:

1) No dividends at the moment

As of now, SMG is not giving out any dividends yet; ie no dividend return based on now.

2) Doctors leaving SMG once their lock out periods end;

3) Slowdown in medical tourism;

4) No direct access to management and not familiar with SMG’s specific fundamental;

5) 4Q18 results in the next couple of weeks

As I am not familiar in SMG’s specific fundamentals, I have no visibility in SMG’s upcoming 4Q18 results. As you are aware, results are an event risk. Results which beat analysts’ estimates coupled with confident outlooks are likely to cause the share price to rise and vice versa.

6) SMG is illiquid

Ave 30D volume is around 179K shares per day only. i.e. It is not an easy stock to enter or exit;

Conclusion

SMG’s chart seems to be strengthening and on the verge of breaching its key resistance $0.430 – 0.440. It has to breach the resistance $0.430 – 0.440 on a sustained basis and with volume expansion for it to be more bullish. Nevertheless, readers should take into account of the above risk factors (note the list of risks is not exhaustive) too. Readers who wish to know more on SMG can refer to SGX for more information and HERE for the analyst reports.

Readers who wish to be notified of my write-ups and / or informative emails, can consider signing up at http://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider leaving their contacts here http://ernest15percent.com/index.php/about-me/

P.S: I am vested in SMG for a potential trading play and aim for a few bids of profit if any. I have highlighted SMG to my clients this morning when it is $0.425/0.430. Do note that as I am a full time remisier, I can change my trading plan fast to capitalize on the markets’ movements.

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