Raffles Medical - Maybank Kim Eng 2016-04-25: Healthy growth

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RAFFLES MEDICAL GROUP LTD R01.SI 

Raffles Medical (RFMD SP) - Healthy growth 

1Q16 in line, hospital segment stood out 

• 1Q16 results were within expectations, core earnings increased 4% YoY and met 21% of our full year results. 
• Revenue growth was robust, at 23% YoY, or 12% YoY excluding the newly acquired MCH. 
• Hospital segment outperformed, growing by 15% YoY. This is its highest growth since 4Q14 and management attributed this to higher volume, greater case intensity and expanded capacity. 
• Separately, revenue for healthcare division grew by 36%, or 7% excluding acquisition. 
• Excluding the newly acquired MCH, revenue growth was 12% YoY, in line with the double digit organic growth target. 
• MCH, acquired in Oct 2015, incurred a mild operating loss of SGD0.4m due to one-off restructuring costs. Excluding this, operating profit would have grown 8%, from 6%. 

Orchard Medical Centre to break even earlier 

• Orchard Medical Centre, opened in Jun 2015 is ramping up smoothly due to its convenient location, healthy demand and high standards. 
• Management expects the operation to break even in 3Q16, one year earlier than its initial expectation. Moreover, majority of the visitors are new patients, with minimal cannibalisation with its existing clinics. 

Expansions progressing well, China to start end-2018 

• All expansions are progressing smoothly, with Holland Village Medical Centre receiving TOP in Mar 2016 and is on track to commence operations in Jun 2016. Also, it has secured tenants for 60% of the unutilised floor space. 
• Management expects 5-6% yield for this property, indicating a rental income of SGD5-6m, for its unutilised floor space. 
• Raffles Hospital Extension and the Shanghai Hospital are expected to complete in 1H17 and 1H18 respectively. Both projects should commence operations within 6 months after completion. 

Maintain BUY; catalysts from more expansions 

• Maintain BUY and our DCF TP of SGD5.20. 
• No change to our EPS. 
• We expect catalysts from further progress in overseas and local expansion.

Swing Factors 

Upside 

• Further progress in second hospital in China, which could be in Shenzhen or other top cities. Shenzhen hospital first announced in Feb 2013. 
• Faster-than-expected breakeven for Singapore expansion. Normal breakeven is one year. 
• Medical tourism in Singapore could recover from 2015 weakness as RFMD is constantly seeking new source markets. 

Downside 

• Execution risks for Shanghai hospital, its first outside Singapore. 
• Higher-than-expected start-up costs in major expansion markets such as China. 
• Structural decline of medical tourism in Singapore.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-25

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 5.20 Same 5.20