Raffles Medical - Maybank Kim Eng 2016-07-22: Demonstrating firmer commitment to China

Raffles Medical - Maybank Kim Eng 2016-07-22: Demonstrating firmer commitment to China RAFFLES MEDICAL GROUP LTD BSL.SI 

Raffles Medical (RFMD SP) - Demonstrating firmer commitment to China

Positive on SGD600m target for overseas expansions

  • Bloomberg reported management as saying that it will spend SGD1b over the next three years to set up hospitals and clinics in Asia. About SGD600m will be for overseas expansion, especially in China, while SGD310m for Singapore. 
  • It is open to acquisitions and is in discussions to set up hospitals in Beijing and Shenzhen, which will provide a healthy expansion pipeline. 
  • Maintain BUY and DCF-based TP of SGD1.73 (WACC 8.1%, LTG 2.5%).

More China projects in the pipeline

  • After including Raffles Medical’s SGD170m Shanghai project, we note it has SGD430m remaining to spend, which is equivalent to two and a half more 400-bed hospitals. Also, as mentioned in the Bloomberg report, management is open to acquisitions. 
  • At this point, we expect the China projects to come in phases, to prevent over-stretching the balance sheet and management’s resources. 
  • Given Raffles Medical’s strong balance sheet and robust cash flow, it could gear up easily to fund expansion. We expect management to firm up more hospital projects in China and this could be the catalyst needed for the share price re-rating to continue.

Firm foundation from steady organic growth

  • Management expects to achieve 11% organic sales growth for the future, still committed to double-digit growth but slightly more positive from 10% target set previously. This should continue to form a solid foundation to support its expansion.

Upcoming events

  • Upcoming events where management could update its operations, business strategy and expansion plans:
    • 23rd July – 40th anniversary corporate dinner
    • 25th July - 2Q16 results briefing for analysts and investors luncheon

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-22
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.73 Same 1.73