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Raffles Medical - DBS Research 2016-07-04: Valuation pricing in long-term growth

Raffles Medical - DBS Research 2016-07-04: Valuation pricing in long-term growth RAFFLES MEDICAL GROUP LTD R01.SI 

Raffles Medical - Valuation pricing in long-term growth


Maintain HOLD, TP revised to S$1.43. 

  • We maintain our HOLD recommendation for Raffles Medical with a TP of S$1.43 (including potential value of its Shanghai JV hospital). 
  • At its current valuation of 36x FY16F 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.


Expansion plans in Singapore on track while Shanghai was deferred. 

  • The progress of its expansion plans in Singapore is on track, with Raffles Holland V opening its doors recently and Raffles Hospital Extension expected to complete in 2017. 
  • However, we note that its Shanghai Hospital’s completion is now projected to be in late 2018, instead of mid-2018 as was previously expected, and slated to be operational from 2019.


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 forecast a 3-year earnings CAGR of 7%, significantly slower vis-à-vis the 19% rate in the last decade.


Valuation:

  • Our target price of S$1.43 is based on its historical average PE of 29x on average FY16F/17F earnings. 
  • Our estimates include 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.





Rachel TAN DBS Vickers | Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-04
DBS Vickers SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.43 Same 1.43


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