Money Talk: Singapore Medical Group, k1 Ventures

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. Singapore Medical Group (SMG)

Broker: CIMB

The market is understandably excited over SMG's new management; new non-executive chairman Tony Tan and new CEO Dr Beng Teck Liang both have outstanding track records. Mr Tan is the founder and former MD of Parkway Holdings, while Dr Beng has experience as a medical doctor and in senior management for global MNCs.

They intend to pursue growth by strengthening SMG's medical verticals, expanding its services, beefing up its referral network and penetrating the Indonesian market through a JV.

However, we think more developments could be on the cards once the company is firmly on the turnaround track. Management could leverage its knowledge and experience to penetrate into the tertiary healthcare space through inorganic growth.

The aggressive streamlining of the company has also resulted in encouraging 2H13 numbers.

However, the stock's 67 per cent run-up within six months from Nov 2013 may just be too fast and too furious. The group is still in the early stages of a turnaround, and the profit contribution from its JV in Jakarta is uncertain at this point. SMG has what it takes to complete its turnaround and deliver results. It could be worthwhile to monitor its progress in the journey back to the black.

2. k1 Ventures

Broker: OSK-DMG

According to news reports, China Grand Automotive Services, the largest automotive dealer in China, has received approval from the Hong Kong Stock Exchange for an IPO. China Grand Auto, which is majority-owned by TPG Capital, is looking to raise US$700 million by selling a 15 per cent stake in the company.

k1 Ventures, which has an effective stake of 1.6 per cent in China Grand Auto, could potentially monetise its stake for $90 million, by our estimates, and realise gains of some $70 million. k1 recently sold its rail equipment leasing business in the United States for US$143 million in net proceeds and paid out a five cent special dividend.

We expect the company to continue to dish out dividends upon portfolio divestments as management has committed not to make new investments and return excess cash from investment sales. Since 2004, the group has returned some $700 million to shareholders in capital distributions and dividends from profitable exits.

Applying a 20 per cent holding company discount, our target price of $0.23 offers 28 per cent upside from current levels. We maintain our Buy rating.