RAFFLES MEDICAL GROUP LTD
R01.SI
Raffles Medical Group - Growth comes at a cost
- 4Q15 core net profit broadly in line, with FY15 forming 102% of our forecast (99% of consensus).
- ISOS acquisition contributed positively to topline, but margin pressure weighed down on profitability.
- Hospital services growth (+7% yoy) mostly driven by domestic patient load.
- Medical tourism still weak, registering 2% growth vs. historical 20+%.
- Our SOP-based target price is trimmed on EPS cuts to factor margin contraction.
■ Topline ahead of expectations on ISOS contributions
- 4Q15’s revenue grew a strong 14.7% yoy to S$114.7m, with contributions from ISOS (c.S$9.5m, consolidated from Oct 15) accounting for ~2/3 of the growth.
- Ex-ISOS, 4Q topline growth was only 5.3%. However, margins at ISOS are lower (management disclosed that ISOS’s staff costs are c.60% of sales vs. RMG’s c.50%).
- 4Q’s core net profit (S$21m) was therefore just about in line with our expectations (S$20m) and consensus (S$22m).
■ FY15 hospital services mostly driven by local patient load
- Recall that the biggest positive surprise in 3Q15’s results was the 11.7% yoy growth in hospital services (1H15 grew at 6-7%), which was mostly (~2/3) driven by higher case intensity.
- We therefore read FY15’s hospital growth of 7% yoy (5% higher patient load, 2% greater acuity) as slightly disappointing, given that we were expecting the momentum of higher average bill sizes to continue into 4Q.
■ Medical tourism still weak
- The trend of slowing medical tourism has not abated, although this is more to do with the weak macroeconomic conditions and currencies in neighbouring ASEAN countries than anything else.
- Management highlighted that total foreign patients grew a marginal 2% in FY15, with Indonesian patients most affected (down 5-10%).
■ Continued margin contraction
- The margin contraction continues. This is not helped by lower margins at the recently acquired ISOS.
- Shaw Centre is taking longer than expected to break even (guidance is now 2 years instead of original 1 year), incurring losses of c.S$1.5m in its six months of operations since Jun 15.
- Staff costs remain the biggest pressure and we think RFMD will continue to add headcount in preparation for its hospital extension and Shanghai.
- FY15 OP margin at 19.6% (FY14: 21.4%).
■ Margin pressure to weigh down growth plans in the near-term
- RFMD declared a final dividend of 4.5 Scts, bringing FY15 DPS to 6 Scts (FY14: 5.5 Scts), representing a yield of 1.4% and c.50% payout ratio.
- No change to the guidance on timeline regarding the various expansion projects.
- The company also proposed a 1:3 share split, subject to shareholder approval.
- Our EPS cuts factor in the further margin pressure and lower our SOP-based target price to S$4.45.
- Maintain Hold.
Jonathan SEOW
CIMB Securities
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Kenneth NG CFA
CIMB Securities
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http://research.itradecimb.com/
2016-02-23
CIMB Securities
SGX Stock
Analyst Report
4.45
Down
4.67
