Paul Chew of PhillipCapital has downgraded Thomson Medical to "neutral" from "buy" as the healthcare group reported 1HFY2025 results that were below expectations.
For the six months to Dec 31 2024, TMG reported a net loss of $12.9 million, weighed down by a 90% "collapse" in its earnings in Malaysia operations, due to the loss of insurers and heavier discounting.
TMG's Thomson Hospital Kota Damansara had become "reliant" on an insurance company that demanded steep discounts. "Without an insurance company, patients have to bear the cost out of pocket rather than cashless," explains Chew.
In addition, the company got to bear with a 50% increase in finance costs.
Chew believes that the worst is over for TMG but the company will continue to be hampered by various operational issues. There are some positive attributes but a pick-up in earnings will be "gradual".
In Singapore, Chew sees TMG growing its "revenue intensity" while in Malaysia, 6 new oncologists will help "significantly" boost revenue and bill sizes.
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Over in Vietnam, where TMG runs the FV Hospital, the company faces intense competition and discretionary spending and elective surgery have also been weak.
"TMG's focus is to improve the hospital's marketing discovery and visibility. Due to competitive pressure and a delay in expanding bed capacity, we are not expecting a strong improvement in earnings," warns Chew.
In Johor, tendering activity for a 500-bed general hospital that is just 1km from Johor checkpoint with Singapore is underway.
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Construction could start by year-end and this new facility can be operational after three years.
Meanwhile, Chew has cut his FY2025 revenue projection by 12% and ebitda by 23%, leading to his downgrade to "neutral" from "buy", along with a lower target price of 4.8 cents from 6.1 cents previously.
Chew values TMG's core hospital operations at 13x EV/EBITDA FY2025, which is in line with peer hospitals, and the company's Johor land bank at $1 billion. The 1.5ha earmarked for TMG's upcoming Johor hospital is valued at its acquisition cost of $80 million and for the remaining 9.5ha, Chew has assigned a gross development value potential of $3.4 billion.
