Raffles Medical Group - OCBC Investment 2017-04-06: New hospital in Chongqing strategically located

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RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical Group - New hospital in Chongqing strategically located

• New 700-bed hospital in Chongqing, China.
• Beneficiary of broader developments.
• Targeted to complete in 2Q18.

Developing a 700-bed hospital in Chongqing by 2Q18 

• Raffles Medical Group (RMG) recently announced plans to develop a 700-bed international tertiary general hospital in the New North District of the Liangjiang New Area in Chongqing. 
• They have acquired a piece of land with an estimated land area of 28k sqm together with an in-construction building. The construction is targeted to be completed in 2Q18 and the consideration payable for the land and the construction costs incurred up to end Jan-17 was ~RMB188m. 
• A preliminary estimate for total capex for this project stands at RMB1b, including the RMB188m.

Potentially significant addressable patient population 

• Chongqing is often seen as a major beneficiary of China’s Silk Road initiatives given its strategic location, and coupled with the Yu’xin’ou railway (Chongqing-Xinjiang-Europe), Chongqing is set to enjoy increased connectivity to central Asia, Russia and Europe. There has been continuous development of various industries including automotive and more than 200 Fortune Global 500 companies have reportedly established branches in Liangjiang New Area . 
• The Liangjiang New Area is the third national economic development area since 2010, after Pudong New Area in Shanghai (where RMG’s Shanghai Hospital is) and Tianjin Binhai New Area. We understand that there are currently no hospitals near RMG’s. 
• Against this backdrop, we believe RMG’s hospital in Chongqing would be one of the early movers to ride on the area’s rapid growth and increased connectivity, serving a mix of upper-middle income local patients from across China, expatriate as well as international patients.

Positive in the long run 

• With the group’s pipeline of expansion plans in mind (Raffles Hospital extension and China hospital projects), we are cognizant of the inevitably higher costs from several fronts although we believe cost management remains in control. 
• We are positive on this new development in China for the long run, which is further backed by a team experienced with the region. For now, we keep our estimates unchanged. 
• Maintain BUY and S$1.60 FV.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2017-04-06

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.600 Same 1.600