Raffles Medical Group: Run-up has reduced share price upside
Results were broadly in line with expectations
Prospects remain promising
Raised FV to S$4.59
2H usually stronger
- Raffles Medical Group’s (RFMD) 2Q15 revenue rose 7.2% YoY to S$99.3m, forming 23.6% of our FY15 forecast.
- This was on the back of growth in both its healthcare services and hospital services by 5.7% and 6.6% respectively.
- Healthcare services division had lower insurance revenue as these contracts are mostly signed in 1Q.
- The hospital services division was driven more by local demand this quarter, as waning medical tourism becomes a drawback.
- Higher staff costs (2Q: +9.4%) and operating lease expenses (2Q: +19.8%) continued to be incurred. As a result, PATMI was up 2.2% to S$15.9m, making up 21.9% of our full-year forecast.
- While 1H15 bottom-line constituted about 42.5% of FY15F, 2H is usually the stronger period.
- The group also declared a DPS of 1.5 Scents, similar to last year.
Building sustainable growth
- The Emergency Care Collaboration with the Ministry of Health has started since June this year, and the group has a new multi-service centre at Shaw Centre (17.5k sq ft) operating from June as well, whereby management stated that this is equivalent to opening ~30 clinics.
- Looking ahead, Raffles Holland V is on track for completion by 1Q16.
- But Raffles Hospital extension will see a delay in its opening to 2Q17 instead of 1Q17 due to construction issues.
Finalizing plans for Shanghai hospital project
- To support growth for its future Shanghai hospital, which is slated to be ready by mid-2018, we understand that RFMD plans to open 1-2 more medical centres in Shanghai.
- The group is currently finalising plans for the hospital, and construction should start by early next year.
Maintain HOLD
- We are keeping our forecasts largely unchanged.
- We acknowledge that RFMD’s prospects warrant a certain premium, however its share price runup since May has resulted in even higher valuations now.
- As we lift our peg to 33.5x FY15/16F PE in consideration of the group’s rerating and growth potential, our fair value estimate is raised to S$4.59 (previous: S$4.17).
- Maintain HOLD on limited upside.
(Jodie Foo)
Source: http://www.ocbcresearch.com/
