Singapore O&G: Three things to know about the new CEO

Singapore O&G (SOG) has a new CEO! SOG has appointed Eric Choo, the ex-CFO with effect from 3 February 2020. Eric was the CFO of SOG from 2014-18 and was involved in the company’s 2015 IPO before leaving to work as CFO of Eagle Eye Centre.

Here are a few thoughts:

1. It’s always a good thing when the ex-CFO returns to work for a company. At the very least, you know that the company’s accounting practices are sound!
2. Eric Choo previously spent 4.5 years working for SOG so he should be able to hit the ground running. On the downside, the new CEO knows about the skeletons in the closet so the company may do a big goodwill write-down for the dermatology segment when they report results in February 2020. A complete write-down will be painful but it will allow investors to see the company’s growth for subsequent years. (It’s very difficult to grow earnings when the company is doing a SGD2m goodwill impairment every year!)
3. The decision to hire an ex-employee suggests that SOG is keen to maintain the company’s current focus on organic growth and regular dividends: this implies  steady growth by developing new clinics instead of M&A or overseas expansion. This is probably a good thing for shareholders because the company’s new clinics been successful with the younger doctors ramping up their contributions nicely. Even if SOG’s doctor headcount remains constant over the next five years, the company should be able to grow 10% every year.

SOG is currently trading at 17.8x reported earnings and 13.1x recurring earnings. Valuations are low now so the company would have to deliver on earnings growth and stable dividends before a re-rating can happen.