Raffles Medical Group - RHB Invest 2016-10-25: Upbeat Outlook Points To Robust Health Ahead

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RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical Group - Upbeat Outlook Points To Robust Health Ahead

• With two new medical centres ramping up and two new hospitals coming on-stream over the next two years, we believe Raffles Medical’s growth potential is becoming exciting once again. 
• We expect EPS to increase at a 16.6% CAGR over FY15-18, on the back of higher capacity. 
• Maintain BUY, with a higher TP of SGD1.76 (from SGD1.70, 17% upside).

Rental boost in FY17. 

• Although the majority of the tenants of Raffles Holland V have not moved in yet, approximately 95% of the space has been committed (as at 24 Oct 2016). Raffles Medical will start recognising some of the rental incomes in 4Q16, while the bulk will flow in from 1Q17 onwards.

Immune to slowing medical tourism in Singapore. 

• In Singapore, hospital services continued to register mid-single digit growth. 
• Raffles Hospital has not seen a decline in its foreign patient load despite intensifying competition from neighbouring countries and the SGD appreciating against regional currencies. Moreover, its hospital is operating at an optimal utilisation rate of c.70%. Thus, we expect its patient load to grow when the construction of the Raffles Hospital extension is completed in 1H17.

Regaining health. 

• In addition, we expect Raffles Medical to perform better in FY17F on the back of: 
  1. Better cost structure in newly-acquired International SOS, a healthcare provider with 10 clinics across China, Vietnam and Cambodia; 
  2. Ramp-up of its medical centres at Orchard Road and Holland V Road; 
  3. Higher margins stemming from the increased focus on specialised medical services in Hong Kong.

Reiterate BUY with a higher TP SGD1.76. 

• While 3Q16 results was slightly below expectations due to slower-than-expected contributions from rental income, we remain optimistic on its near-term growth prospects. 
• We trim our FY16-18F earnings by 0-3% but expect EPS to grow at a 16.6% CAGR over FY15-18. 
• Our new DCF-derived TP of SGD1.76 implies 33x FY17F P/E.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2016-10-25

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.76 Up 1.700