2020 was a great year for Clearbridge Health. The Group achieved a record revenue, and posted a turnaround in net profit. Moving forward, Clearbridge Health should continue to grow as the Group is well positioned to ride on the increasing demand for medical services within the Southeast Asia region.

 

Clearbridge Health Limited (SGX: 1H3) is a fast-growing healthcare company focused on the delivery of precision medicine tools in Asia.

The Group performed well in FY20, as their overall revenue surged by 68.4% to a record SGD 36.26 million, compared to SGD 21.53 million in FY19.

 

The Group marked a significant turnaround, with a net profit of SGD 2.07 million in FY20, compared to a net loss of SGD 11.66 million in FY19. Additionally, the Group has turned cash flow positive.

 

The demand for healthcare in Southeast Asia&rsquo s fastest growing markets &ndash Philippines and Indonesia, would bring about tremendous growth opportunities for Clearbridge Health, which already has a presence there.

 

Our 2022 target price for Clearbridge Health is SGD 0.190, and based on its closing price of SGD 0.151 on 29 March 2021, it offers investors a 26% upside potential. 

 

Listed in December 2017, Clearbridge Health is a relatively new company. Since its listing, the Group has grown significantly, and has gone on to achieve several milestones relating to revenue and profitability.

 

We believe that Clearbridge Health will continue to grow, as the Group remains well positioned to benefit from the growing healthcare demand in some of Southeast Asia&rsquo s largest countries.

 

Clearbridge Health operates via its three business segments: (a) Medical Clinics and Centres, (b) Healthcare Systems and (c) Strategic Equity Participation.

 

However, revenue is only recognised from the medical clinics/centres (contributing 53.2% of the overall revenue in FY20) and healthcare systems segments (contributing 46.8% of the overall revenue in FY20).

 

Revenue from the Group&rsquo s medical centres and clinics segment recorded an increase of 222.95% from SGD 5.97 million in FY19 to SGD 19.28 million in FY20 (Figure 1). This increase in revenue can be attributed to contributions from the nine dental clinics which was acquired in late August 2019, operating under the Dental Focus brand name in Singapore.

 

The provision of Covid-19 testing related services in the Philippines and the distribution of the Covid-19 antibody test kits has further contributed to the increase in revenue from medical clinics/centres as well.

 

For the healthcare systems segment, comprising of the provision of laboratory services and renal care services, revenue increased by 9.13% from SGD 15.56 million in FY19 to 16.98 million in FY20, with the revenue mainly coming from its clinical laboratories in Indonesia.

 

These clinical laboratories, which play the role of providing health screening and diagnosis for general patient care, suffered from a lower patient load in 1H20 due the lockdown measures. Clearbridge Health expects to see significant growth from this segment, if not for the disruptions to its operations caused by the Covid-19 pandemic.

 

Overall, the Group recorded a record revenue of SGD 36.26 million in FY20. This was a 68% increase from the revenue of SGD 21.53 achieved in FY19. In fact, over the past 3 years, Clearbridge Health has been growing at an impressive CAGR of 143% (Figure 2).

 

Significant turnaround in net profit and operating cash flow

As a result of the exponential growth of revenue over the years, Clearbridge Health has gone from loss making to profitable.

 

The Group marked a significant turnaround with a net profit of SGD 2.07 million in FY2020, compared to a net loss of SGD 11.66 million in FY19 (Figure 3).

 

Additionally, the operating cash flow generated for FY20 was SGD 1.86 million, a major turnaround from the negative SGD 8.64 million generated in FY19.

 

As Clearbridge continues to expand its current operations and acquire new healthcare entities, we expect to see growing profitability as well as stronger operating cash flows. 

 

Southeast Asia&rsquo s fastest growing markets are expected to bring about tremendous growth opportunities

For private healthcare players, Southeast Asia is a region of great opportunity. The three powerhouses of healthcare market growth are found in Southeast Asia&rsquo s most populous countries &ndash Indonesia, Philippines, and Vietnam.

 

An environment scan has revealed that these countries suffer from a supply-side issue arising from an under-developed healthcare infrastructure. But at the same time, they are expected to experience a significant increase in healthcare demand, which is supported by their high GDP growth (Figure 4).

 

This is because high GDP growth often translates to rising affluence among the population. With rising affluence, there is a greater economic incentive for individuals to adopt preventive approaches through more personalised, accurate and timely diagnosis. All these will naturally boost the demand for better quality healthcare services within these countries.

 

Clearbridge Health is aware of this opportunity, as a key part of their expansion strategy is its regional roll-out of medical clinics/centres and laboratories in these highly populous Southeast Asia countries. In fact, the company has been aggressive in its expansion efforts in the Philippines and Indonesia.

 

Clearbridge Health has adopted the public-private partnership (PPP) model to scale its healthcare services operations in Indonesia. 

 

With a Public-Private-Partnership Model, the Group currently manages a total of 43 hospital joint operation contracts across Indonesia serving close to 4 million patients per year. These contracts are primarily in the area of renal care (TMJ) and pathology (IGM Labs) at public and private hospitals (ranging from Class A hospitals to Class C hospitals) in Indonesia (Table 1).

 

Clearbridge&rsquo s public-private partnership (PPP) model in Indonesia

PT Tirta Medika Jaya (TMJ), currently co-operates renal dialysis facilities with 36 hospitals (7 of which are currently under renovation or awaiting permits & certifications )

  PT Indo Genesis Medika (IGM Labs), one of the largest clinical laboratories in Indonesia, co-operates 18 clinical laboratories and other patient care in hospitals

Services offered by IGM Labs and TMJ are reimbursed by Indonesia health coverage program

Source: Clearbridge Health FY20 Presentation, iFAST Compilations

 

For TMJ, contracts with the hospitals are typically between 7 and 10 years, with Clearbridge Health receiving a 60% to 70% share of the revenue. While for IGM Labs the contracts range from 5 to 7 years, with Clearbridge getting a share of 55% to 70% of revenue.

 

Patient expenses for renal care services and laboratory testing services offered by TMJ and IGM Labs respectively are reimbursed through the Indonesia government&rsquo s health coverage program, contributing to the strong demand for such services.

 

Moreover, Clearbridge Health has a presence in the Philippines (Table 2). The Group has a 4-storey multi-specialty medical centre in Quezon, Manila that offers a wide range of services such as primary healthcare, dentistry, renal dialysis centre, health screening, vaccination and pharmacy.

 

During the pandemic this medical centre was re-positioned as a Covid-19 testing centre for general screening and return to work program in Manila. The provision of such Covid-19 testing related services helped contribute to the medical centre&rsquo s revenue.

 

Operations in Philippines

Clearbridge Medical Philippines, a four storey multi-specialty medical centre in Manila, offering wide range of services including primary healthcare, dentistry, renal dialysis centre, health screening, vaccination and pharmacy

ClearSkin Advanced Dermatology and Laser Centre, a derma clinic chain caters to middle-class in Manila and Cebu

  Distribution network of diagnostic services

Source: Clearbridge Health FY20 Presentation, iFAST Compilations

 

Given that Clearbridge Health has a presence in both Indonesia and the Philippines, they are able to capitalise on the supply-demand gaps present in both these countries, and benefit from their rapidly growing healthcare market.

 

Despite its growth potential, Clearbridge Health is undervalued compared to its peers (Table 3). We assign a fair PE of 17.5X to Clearbridge Health, which translates into a target price of SGD 0.190. At the closing price of SGD 0.151 (as of 29 March 2021), investors can expect an upside potential of 26%.

 

*Based on 2022 earnings estimates

 

Moreover, as of 31 December 2020, Clearbridge Health&rsquo s balance sheet further strengthened, with cash at banks and short-term deposits amounting to SGD 14.03 million, and with total borrowing decreasing to SGD 18.64 million. The Group is in a much better financial position, with a lower net debt-to-equity ratio of 7.50% compared to 15.90% in the preceding year (Table 4).

 

All in all, Clearbridge Health has built up a robust healthcare solutions portfolio with recurring revenue streams. The Covid-19 pandemic failed to hinder the Group&rsquo s growth as they successfully deployed several Covid-19 related product and service offering to ensure that they remain resilient.

 

Moreover, looking at Clearbridge&rsquo s success in Philippines and Indonesia so far, we feel that this company is well positioned to benefit from the tremendous growth opportunities that exist in these highly populous markets. 

 

 

As the COVID-19 pandemic unfolded in FY2020, the Group responded with business agility and strong execution capabilities to harness the medical and healthcare opportunities in the region with its regional healthcare networks and distribution platform. 

 

Revenue from the Group&rsquo s medical centres and clinics business unit recorded an increase of S$13.31 million, to S$19.28 million in FY2020 as compared to S$5.97 million in FY2019. The strong growth was mainly attributed to contributions by the nine dental clinics, operating under the &ldquo Dental Focus&rdquo brand name, that was acquired in late August 2019, the sale of medical supplies (i.e. face masks and personal protective items) at its medical clinics/centres operations in Hong Kong and the Philippines, provision of COVID-19 testing related services in the Philippines and distribution of the COVID-19 Antibody Test Kits.

 

In addition, revenue from the Group&rsquo s healthcare systems, comprising the provision of laboratory services and renal care services, increased by S$1.42 million to S$16.98 million in FY2020, from S$15.56 million in FY2019. The increase was mainly due to the full year revenue contribution from PT Indo Genesis Medika (&ldquo IGM Labs&rdquo ) of S$12.11 million in FY2020, as compared to the revenue contribution of S$10.31 million in FY2019 when it was acquired in May 2019. The increase was partially offset by decrease in revenue SAM Laboratory Pte Ltd as it had disposal of Biomedics Laboratory Pte Ltd (&ldquo Biomedics&rdquo ) in May 2020.

 

With a Public-Private-Partnership Model, the Group currently manages a total of 43 hospital joint operation contracts in Indonesia serving close to 4 million patients per year, primarily in the area of renal care (through PT Tirta Medika Jaya (&ldquo TMJ&rdquo ) which was acquired in April 2018) and pathology (through IGM Labs which was acquired in May 2019) at public and private hospitals (ranging from Class A hospitals to Class C hospitals) in Indonesia. 

 

The renal care services and laboratory testing services offered by TMJ and IGM Labs respectively are reimbursed through the Indonesia government&rsquo s health coverage program.

 

The Group&rsquo s overall revenue surged by 68.4% or S$14.73 million, to a record S$36.26 million in FY2020 as compared to S$21.53 million in FY2019. 

 

During FY2020, certain subscribers of the Company&rsquo s convertible bonds converted into ordinary shares in the Company and as a result, there was a decrease in borrowings of S$3.87 million under non-current liabilities as at 31 December 2020.

 

As at 31 December 2020, the Group&rsquo s balance sheet further strengthened with net assets increasing to S$61.33 million and cash at banks and short-term deposits of S$14.03 million.