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Raffles Medical - Maybank Kim Eng 2015-10-26: Expansion Quarter

Raffles Medical - Maybank Kim Eng 2015-10-26: Expansion Quarter RAFFLES MEDICAL GROUP LTD R01.SI 

Raffles Medical - Expansion Quarter 

  • 3Q15 below due to start-up costs. 9M15 at 65% of our FY15F. Revenue in line, up 7% YoY. Cut FY15-17 EPS by 6-7% for higher start-up costs. 
  • Expansion should maintain healthy growth. Enhanced presence in Asia presents more opportunities. 
  • Maintain BUY. Cut DCF TP to SGD5.22 from SGD5.40 after EPS adjustments. Catalysts from further expansion. 


Revenue Growth Healthy 

  • 3Q15 earnings were below expectations due to higher-than-expected start-up costs. Expansion at Raffles Hospital and newly opened Orchard Medical Centre raised depreciation and rental charges. But more importantly, topline grew 7% YoY - in line. 
  • Revenue of its bread-and-butter hospital services, which formed 70% of earnings, increased 12% YoY, as higher revenue intensity from more complex procedures made up for flat patient volume growth. 

Positives from Expansion & Acquisitions 

  • A continued ramp-up of Raffles Hospital and Orchard Medical Centre, along with the newly-acquired International SOS (MC Holdings) Pte Ltd, should sustain its earnings growth. Come 1Q next year, Holland Village Medical Centre should begin operations. 
  • Rental income starting 2Q next year should more than make up for start-up costs. 
  • After its acquisition of International SOS (MC Holdings), Raffles Medical has increased its presence to 13 cities in Asia, up from four. Management can now explore more expansion opportunities. 
  • Maintain BUY. We reduce our DCF TP (WACC 8.1%/6.3% for SG/CHN) to SGD5.22 from SGD5.40 after cutting EPS 6-7% for FY15-17. 
  • Still, we expect catalysts from further progress in overseas and local expansion.


John Cheong Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-10-26
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 5.22 Down 5.40


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