How Does Singapore O&G Ltd Make Its Money?

One of the most important rules in investing is to know exactly how a company makes its money before you commit any capital to it.

It is with this in mind that I decided to open up the latest 2015 annual report of healthcare services provider Singapore O&G Ltd (SGX: 41X) to help investors learn more about its business and revenue sources. The company is relatively new in Singapore’s stock market – it got listed only in June last year – so many investors may not be familiar with it.

Here are some of my notes from the report:

  1. Singapore O&G brought in S$16.4 million in revenue in 2015, up 21.2% from a year ago. Of this sum, 90.6% came from its Obstetrics & Gynaecology segment while the remaining amount was from the Cancer-related segment.
  2. Here’s how the company describes its various business segments in its 2015 annual report:Singapore O&G business segment
    Source: Singapore O&G annual report
  3. You may notice that the Dermatology segment is missing from Singapore O&G’s 2015 revenue. That’s because the business was acquired on the very last day of 2015 and officially commenced only this year.
  4. Singapore O&G’s business can be considered to have some key-person risk given that it derives revenue mainly from the medical services provided by its stable of specialists. In 2015, the company had only seven specialists and they are:
    Singapore O&G specialist table (new)
    Source: Singapore O&G annual report
  5. One of Singapore O&G’s key goals for the future is to diversify its business to “achieve 25% revenue contribution from each of the four segments – O&G [obstetrics & gynaecology], cancer-related, dermatology and paediatrics.” Currently, Singapore O&G does not have any paediatrics-related business. So, investors may want to keep an eye on future acquisitions of specialist clinics in that particular medical field by the company.

Singapore O&G has been a great winner in the Singapore stock market since its listing. Its share price is S$1.17 at the moment, some 368% higher than the listing price of S$0.25.

The company’s results in the first-half of 2016 were excellent, with revenue and profit up by 80.5% and 90.7%, respectively, when compared to a year ago. Growth came organically (mainly from higher patient loads in the Obstetrics & Gynaecology and Cancer-related segments) as well as from the aforementioned acquisition of the Dermatology business. Meanwhile, operating cash flow had jumped by 73% and the balance sheet remains debt-free.

Singapore O&G’s strong growth is reflected in its high valuation. At its current share price, the company has a trailing price-to-earnings ratio of 34, which is nearly three times the PE ratio of 12 that the SPDR STI ETF (SGX: ES3) has. The SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI).

Only time will tell if Singapore O&G can be a market-beating long-term investment at its current price, which gives the company an elevated valuation. But in any case, a breakdown of its sources of revenue and future plans – like what’s shown above – can help investors in making better-informed investment choices.

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Editor's note: This article had incorrectly stated that Dr. Lim Teng Ee, Joyce was part of Singapore O&G's stable of specialists in 2015 and also left out Dr. Radhika Lakshmanan. Dr. Lim joined right at the end of 2015. The errors have since been corrected.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any company mentioned.