SINGAPORE (Oct 12): Following the acquisition of the Astra Women's Specialists group of obstetrics and gynaecology clinics on Tuesday, Singapore Medical Group is expected to continue acquiring other private clinics in existing and new fields, according to RHB Research.

(See also Singapore Medical Group to acquire 6 O&G clinics from Astra Women Specialists for $60 mil)

That said, the brokerage believes the management would likely be prudent and pay no more than 15 times earnings in their future acquisitions.

To recap, SMG acquired the Astra Women’s Specialist’s six O&G clinics and five doctors for S$60 million or 13 times FY15 earnings. The consideration would be funded through cash paid in three tranches and the issue of 81.1 million new shares at 33 cents each. The acquisition also comes with a minimum profit guarantee of S$4.6 million for five years.

RHB’s analyst Jarick Seet noted that the acquisition boosts SMG’s existing O&G team to eight doctors and makes it “one of the largest practitioners in the private sector dedicated towards women’s health and wellness”.

The research house is also doubling the group's FY17 earnings to S$8.3 million on the back of the expected boost from the profit guarantees.

Besides the increased possibility of cross selling within the group, the six-year service agreement with the doctors would also help the group expand into areas like general OB/GYN, fetal-maternal medicine, urogynaecology and in-vitro fertilisation added Seet.

SMG is expected to raise the cash needed for the acquisition through the issue of new shares, and Seet estimates the group will need to issue up to 151 mil shares in total.

RHB is maintaining its “buy” on the medical group with a higher target price of 63 cents from 45 cents to account for the dilution.

Shares of SMG are trading 19.3% higher at 49.5 cents.