Orange Valley Healthcare's yearly earnings are too small.
Singapore Press Holdings (SPH)'s revenue stream diversification to offset loss might fall short of expectations in the near term.
According to UOB Kay Hian, SPH's acquisition of Orange Valley Healthcare is unlikely to be an earnings game-changer.
Analyst Foo Zhi Wei said Orange Valley Healthcare's yearly earnings of $5m to $6m remain too small to offset SPH's core earnings decline of $18m.
The analyst added any expansion will require a near tripling of current beds to contribute meaningful earnings.
"With SPH’s core earnings expected to decline by another S$18m in FY18, earnings from OVH will have to grow by as much to arrest the decline. Making simplified assumptions of $104/day per bed and net margin of 17%, OVH will have to increase its current bed capacity from about 900 beds to over 2,800 to achieve net profit of $18m," the analyst explained.
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