Expansion quarter; to catch up in 2H
- 2Q15 results in line, 6M15 formed 43% of our FY15E. Completed expansions should help 2H15 to catch up.
- NDR well attended, investors are excited in China’s long-term growth. Two new medical centres in Shanghai will be added before the hospital there starts up in 2018.
- Maintain BUY and DCF TP of SGD5.40. Expect catalysts from further progress in China & ramp-up of local operations.
Expansion costs high, expect catch up in 2H15
- 2Q15 revenue and earnings grew 7.2% and 2.2%, respectively.
- The slower growth was due to increase in staff costs, higher operating lease and depreciation from expansion at Raffles Hospital and new Medical Centre at Shaw Centre in 1H15.
- Management highlighted the new 17.5k sf Medical Centre at Shaw Centre is equivalent to 35 clinics and could ramp up quickly.
- We note that the increase in staff costs decelerated at 9.4% YoY in 2Q15 vs 15.2% YoY in 1Q15.
- Earnings should catch up in 2H15 these expansions ramp up.
- Separately, Raffles Hospital’s extension was delayed by three months due to construction issues but other plans are on track.
Well attended NDR; positive on China
- Our post-results NDR was well attended with more than 20 fund managers.
- In Dr Loo’s first investor meeting in Singapore after the confirmation of Shanghai project, he shared the vast potential of the project.
- He believes Raffles Med’s strong brand name and track record will safeguard the venture’s success.
- At stable state, management expects higher ROE than the Singapore’s hospital.
- Several China hospital projects are still under discussion and the areas of focus in Shanghai, Beijing and Shenzhen.
- Two new medical centres will be established over the next 2 years to support its Shanghai operations.
Maintain BUY and TP
- Maintain BUY and DCF TP at SGD5.40, no change to EPS.
- Catalysts will be further progress in China as well as Singapore.
(John Cheong)
Source: http://www.maybank-ke.com.sg
