RAFFLES MEDICAL GROUP LTD
R01.SI
Raffles Medical - A LONGER TIME HORIZON NEEDED
Maintain HOLD, TP revised to S$4.34.
- We maintain our HOLD recommendation for Raffles Medical with a new sum-of-parts based TP of S$4.34, taking into account the potential value of its Shanghai greenfield JV hospital.
- At current valuations of 35.7x/ 33.0x FY15F/16F PE, the counter has reflected its growth potential, in our view.
- We project growth over the next few years to be a tad slower than its historical average.
3Q15 below expectations.
- 3Q15 net profit grew by a muted 1.2%, arising from higher operating expenses such as inventories used (+9.1%), contracted services (+9.3%), depreciation (+28.5%) and lease expenses (+32.3%).
- Foreign patient volume also dipped due to the softer macroeconomic environment, but this was mitigated by higher revenue intensities and local patient base.
Slower growth in the immediate horizon.
- The Group has embarked on an expansion phase with several projects in progress locally and overseas. While this should provide it with a growth trajectory over the long term, we expect a period of gestation and project 3%/8%/9% growth for FY15F/16F/17F, significantly slower vis-à-vis the 22% rate in the last decade.
- We lowered our FY15F/16F forecasts by 7%/10% on the back of higher opex and slower top-line growth.
Valuation:
- We switched our valuation methodology to sum-of-parts (from just PE) to factor in the potential value of its Shanghai JV.
- Our target price is raised to S$4.34 based on 29x FY16F PE, at +0.5SD above average, coupled with S$0.49/share from the value of its Shanghai greenfield hospital.
Key Risks to Our View:
Economic slowdown.
- While healthcare is considered a defensive sector, private healthcare will nonetheless be impacted by a slowdown in the economy since elective procedures can be deferred or patients can choose public hospitals as a lower cost alternative.
Andy SIM
DBS Vickers
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http://www.dbsvickers.com/
2015-10-26
DBS Vickers
SGX Stock
Analyst Report
4.34
Up
3.96
