2QFY09 continues to grow. Thomson Medical achieved a 6.7% YoY growth in revenue to S$15.6m in 2QFY09, despite the economic recession and having closed one ward during the quarter. The improved revenue was attributed to increased referrals from all its clinics, more baby deliveries and higher utilisation of its ancillary services. Net profit for the quarter grew 4.8% YoY to S$3.1m. On a QoQ basis, revenue was 4.8% lower, due to the closure of one ward for renovations. Balance sheet remains strong, with a net cash position of S$11.3m (3.9 S¢ per share). Management declared an interim dividend of 1.0 S¢ for 2QFY09.

Hospital projects in Vietnam on track. Its 260-bed hospital project in Bing Duong Province is expected to commence operations in 1Q CY10, and that is when the hospital management services contract will take effect. According to the contract, Thomson Medical will receive management service fees, which is based on 50% of the hospital’s revenue and a retainer fee (for the first two years of operations). This would contribute to earnings in FY10.

Possible venture in the region. The Thomson Women Cancer Centre (TWCC) started operations in Feb 09 and is expected to contribute to growth as it refers operating procedures to Thomson Medical. Management is looking to extend its TWCC services in Vietnam and Indonesia, where there is demand for oncology services. Should this plan take off, this would enhance Thomson Medical’s reputation in the region, and would be a positive for the Group’s business.

Maintain BUY. We are keeping our earnings estimate of S$13.0m (EPS: 4.4 S¢) for FY09 and target price of S$0.55, based on 12x FY09/10 earnings. While the operating environment is challenging, given the economic recession, we believe Thomson Medical is less vulnerable, as it is in a niche O&G segment. Assuming management pays out the same amount of final dividend this year (1.5 S¢), it would translate into a dividend yield of 5.7%. We maintain our BUY recommendation.