Raffles Medical Group - RHB Invest 2015-10-27: Transition Period To The Next Growth Phase

RAFFLES MEDICAL GROUP LTD R01.SI

Raffles Medical Group - Transition Period To The Next Growth Phase

3Q15 results were in line with expectations, with net profit coming in at SGD15.7m (+1% YoY).
Maintain BUY with a revised DCF-derived TP of SGD5.40 (23% upside).
Profit growth was subdued by weaker economic conditions, as well as start-up costs for expansion projects.
We believe the company is in a transition period to the next growth phase.

3Q15 revenue was up 7.4% YoY, driven by hospital services, which grew 11.7% YoY. A slight decline in foreign patient load was offset by higher revenue intensity and volumes.
On the other hand, the healthcare services (clinics) segment had one of its weakest quarters, recording just 3.5% YoY growth as corporates become more cost-conscious.
A spike in staff cost in 1H15 appeared to have moderated somewhat, although overall profit was still dragged down by higher operating expenses, with the opening of a new medical centre at Shaw Centre in 3Q15.

Holland Village development remains on track for opening in 1Q16, and management shared that there is already a strong tenant line-up (for non-clinical space). The project will be bottomline-positive from the start, due to rental collection from unutilised space.
Raffles Hospital remains on track for 1H17 opening, while Shanghai Hospital project will have ground-breaking next month.

Raffles Medical Group formed a joint venture (JV) (SGD34m investment) with International SOS, which will involve taking over and rebranding 10 clinics operating in China, Vietnam and Cambodia next year, before further expansion. The group’s strategy of targeting gateway cities in China will increase its direct presence in the country.
In addition, the group recently opened a medical centre in Osaka city, Japan, which is a regional gateway city with increasing business and tourism linkages with Korea and China.

We keep our earnings estimates mostly unchanged and maintain our BUY call, with a slightly lower DCF-derived TP of SGD5.40 (from SGD5.50).
While earnings growth this year is likely to be subdued, we believe the company is in a transition phase with a giant leap to potentially greater profitability after FY17, when its major expansion plans are completed.

James Koh RHB Research | http://www.rhbinvest.com.sg/ 2015-10-27

RHB Research SGX Stock Analyst Report BUY MAINTAIN BUY 5.40 Down 5.50