Raffles Medical Group (RFMD SP) - Maybank Kim Eng 2016-10-25: Steady results; Positive NDR

Raffles Medical Group (RFMD SP) - Maybank Kim Eng 2016-10-25: Steady results; Positive NDR 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: 
    1. local operations remain stable, backed by various expansions; 
    2. MCH is integrating well; an enlarged platform provides greater value for corporate clients; 
    3. 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


  • 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.


  • 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/ 2016-10-25
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.85 Up 1.840