RAFFLES MEDICAL GROUP LTD
BSL.SI
Raffles Medical Group (RFMD SP) - Steady results; Positive NDR
3Q16 in line, expect better 4Q; NDR well-attended
- Raffles Medical’s results were in line; 9M16 met 66% of our FY16E. 3Q16 revenue increased 18% YoY or 8% excluding the contribution from newly acquired MCH. Earnings rose 4% YoY or 9% if excluding the loss from MCH.
- We expect a stronger 4Q, supported by rental income from Holland Village Mall and continued ramp up of medical centres. Key takeaways from MKE-hosted NDR:
- local operations remain stable, backed by various expansions;
- MCH is integrating well; an enlarged platform provides greater value for corporate clients;
- positive on China.
Recent expansions stacking up well
- Local operations continued to grow steadily from various expansions. Tenant demand for new Holland Village Mall has improved notably, where 95% of the space has been committed as of Oct 2016. The medical centre performed better than expected and rental income should start contributing in 4Q16.
- Separately, Orchard Medical Centre, started in Jun 2015, continued to improve gradually; adjustments of various specialties should improve results.
- Finally, integration of MCH is progressing well; some MNCs have tapped into its overseas clinic network.
Positive on China; Open to new projects sooner
- Management remains positive on its China expansion, due to the country’s underserved population and its incomplete healthcare system.
- Furthermore, more China projects, especially the two in Shenzhen and Beijing, might begin sooner if the right opportunities arise.
- Raffles’s robust balance sheet and cash flows could fund further expansions.
On track; catalysts from further expansion
- Raffles Hospital’s expansion is on track to be completed by 2017; 60-70% of the new space will be for internal use, much higher than 30% targeted previously, due to higher demand from various specialty treatments.
- We adjust our DCF-based TP slightly to SGD1.85 (WACC 7.1%, LTG 1.5%) from SGD1.84 after raising our FY18E earnings by 1.2% to account for this.
- We expect the next growth catalyst to be Shanghai Hospital, still on track for end-2018 completion.
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
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http://www.maybank-ke.com.sg/
2016-10-25
Maybank Kim Eng
SGX Stock
Analyst Report
1.85
Up
1.840
