Singapore Markets closed

Singapore O&G Ltd Slashes Dividend for Q2 2019

Sudhan P.

Singapore O&G Ltd (SGX: 1D8) provides women and children private health-care services. It has four business segments, and they are Obstetrics & Gynaecology (O&G), Cancer-Related, Dermatology, and Paediatrics. The healthcare outfit announced its financial results for its second quarter ended 30 June 2019 on Wednesday.

Let’s take a closer look at how the company performed for the latest quarter.

Financial highlights

Revenue for the 2019 second-quarter grew 14.9% to S$9.9 million. Singapore O&G said that the improvement in the top-line was due to higher revenue from the O&G, Cancer-related, and Paediatrics segments. The Dermatology segment saw a revenue decline on the back of an increasingly competitive landscape.

The O&G division was once again Singapore O&G’s main revenue contributor, contributing to 54% of the group’s revenue. During the quarter, the number of babies delivered rose 8% year-on-year to 498, bringing the total for the first half of 2019 to 958 babies.

Other operating income fell 91.4% to S$0.1 million largely due to the absence of one-off proceeds from a legal dispute that amounted to S$1.3 million in the 2018 second-quarter.

Profit before income tax tumbled 25.4% to S$3.3 million. Excluding S$1.1 million arising from the legal dispute, net of professional and legal fees included in the second quarter of 2018, Singapore O&G’s profit before income tax for the reporting quarter would have increased slightly by 0.8%.

With the fall in profit before tax, net profit decreased by 27.1% to S$2.7 million and earnings per share declined by 27.8% to 0.57 Singapore cents.

Singapore O&G continues to have a strong balance sheet. As of 30 June 2019, it had a cash balance of S$20.8 million, a slight decrease from S$21.5 million in cash and cash equivalents at the end of 2018. However, the latest figure is a great improvement from 30 June 2018 where it had S$18.2 million in cash balance. It had no borrowings in all three instances.

Cash flow from operations fell 76% to S$0.6 million from S$2.5 million. After accounting for capital expenditure of S$0.2 million for the latest quarter, free cash flow declined from S$2.5 million (capital expenditure was negligible last year) to S$0.4 million.

Show me the dividend

Disappointingly, with the lower free cash flow and net profit, Singapore O&G slashed its interim dividend by 22.5% from 0.80 Singapore cents per share to 0.62 Singapore cents per share. The latest dividend translates to a payout ratio of 61% based on its 2019 first-half reported earnings.

Looking ahead

A seventh O&G medical specialist, Dr Clara Ong, came on board in May 2019. Dr Ivan Lau, chief executive of the company, said that she is well-positioned to capture the healthy demand for its O&G services.

Dr Lau also added that Singapore O&G “will continue to look at expanding the depth of our healthcare services and medical care locally, as well as opportunities to expand overseas to increase our competitive edge and chart further growth for the Group”.

The Foolish takeaway

Singapore O&G continues to see healthy demand for its O&G, Cancer-related, and Paediatrics segments, though its Dermatology segment remains a drag. Also, I didn’t see the dividend cut coming as the company produced healthy free cash flow in the past and looked like it could afford to increase dividends. It will be interesting to watch how Singapore O&G performs for the whole of 2019 and if its dividend situation improves.

At Singapore O&G’s share price of S$0.375 (as at the time of writing), it has a trailing price-to-earnings ratio of 23 and a trailing dividend yield of 4.1%.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore O&G Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.

Motley Fool Singapore 2019