Raffles Medical Group (RFMD SP) - UOB Kay Hian 2017-01-17: Chugging Along Steadily

Raffles Medical Group (RFMD SP) - UOB Kay Hian 2017-01-17: Chugging Along Steadily RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical Group (RFMD SP) - Chugging Along Steadily

  • Our recent visits to Raffles Medical Group (RMG)’s Medical Centres at Orchard and Holland V suggest that these facilities are tracking expectations and would complement its Singapore presence. 
  • We make no change to our 2016-18 estimates (3-year EPS CAGR of 13.9%) and re-iterate BUY with a DCF-based target price of S$1.70 (maintained).


Updates after recent meeting and site visits. 

  • We recently met up with Raffles Medical Group’s (RMG) management and visited its Raffles Medical Centre Orchard and Raffles Holland V. This report highlights the key takeaways.


Raffles Medical Centre Orchard to break even by Jun 17. 

  • Raffles Medical Centre Orchard is ramping up well and we estimate breakeven by mid-17. In order to further drive patient traffic flow to the new multidisciplinary centre, we understand that RMG has recently shifted its Raffles Japanese clinic from Wheelock Place to Shaw Centre. This would consolidate its presence in Orchard and provide more convenience for its patients.

Steady performance from Raffles Holland V. 

  • Meanwhile, management remains positive on the performance of Raffles Holland V Medical Centre. Situated on level five of the mall, the medical centre offers integrated service including family medicine, health screening, dental and traditional Chinese medicine. 
  • With its strategic location near residential areas and schools as well as easy access via proximity to the train station, we believe Raffles Holland Village Medical Centre may achieve breakeven at a faster pace than Shaw Centre, potentially in a year. 
  • Meanwhile, about 95% of space has been leased out to tenants as at end-16. We understand that fitness club Virgin Active, which will occupy the third and fourth levels, will likely move in by Apr 17 and is currently undertaking renovations.

Raffles Hospital extension remains on track for completion in 2H17. 

  • The Raffles Hospital extension is poised to be completed by 2H17. The completed extension will contribute an additional 220,000 sf of GFA to Raffles Hospital. 
  • The integrated medical complex will provide support to the hospital’s existing range of specialist services, healthcare training and clinical research as well as open opportunities for growth and expansion for future years.


Resilience despite potential intervention to rein in healthcare cost. 

  • The Ministry of Health is currently engaging the insurance industry to regulate incidences of overconsumption by patients and over-treatment by healthcare providers. 
  • To better manage escalating claim costs for insurers, recommendations such as “co-payment features” or “use of panel of preferred healthcare providers” were under consideration.

Recommendations are still in the review stage

  • Recommendations are still in the review stage, where we understand that there has been no visible impact on RMG’s operations. 
  • Nevertheless, should there be concrete implementations by MOH to rein in healthcare cost inflation, we opine that the impact on RMG should be limited. This is in part due to RMG’s group structure which sees its doctors salaried, and thus reduces the monetary incentives to overcharge. 
  • Furthermore, RMG does a stringent audit on its medical cases (100% audit), which we believe also reduces incidences of overcharging on the doctors’ part.


2016-18 earnings forecasts unchanged. 

  • We maintain our earnings ahead of the expected release of its 4Q16 results in February. In our latest estimates, we forecast a 3- year EPS CAGR of 13.9% (2016-18F). However, growth is expected to be back-loaded as near-term costs headwinds remain as the group expands capacity.


On our BUY list for long-term growth from new capacity. 

  • We have a DCF-based target price of S$1.70 (unchanged). 
  • At our target price, implied 2017F PE of 34.9x is more than 32.5x (+1SD to mean PE of 25x), which is not cheap but deserved, given that 2017-2018F ROE of 12.6-14% compares to long-term average ROE of 11.6% since 1997. 
  • We continue to like the long-term growth that is underpinned by its new capacity in China and Singapore. 


  • We see possible catalysts from: 
    1. accretive new investments in China or M&As, 
    2. earnings synergies from ISOS; and 
    3. better-than-expected performances from Raffles Medical Centre Orchard and Raffles Holland V.

Andrew Chow CFA UOB Kay Hian | Thai Wei Ying UOB Kay Hian | http://research.uobkayhian.com/ 2017-01-17
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.700 Same 1.700