Raffles Medical Group - RHB Invest 2017-01-05: A New Era Of Growth

Raffles Medical Group - RHB Invest 2017-01-05: A New Era Of Growth RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical Group - A New Era Of Growth

  • 2017 would be an exciting year for Raffles Medical as we expect to see a strong growth pipeline coming on stream, which includes: 
    1. Additional rental income at Raffles Holland Village with an improved occupancy rate; 
    2. Improved profitability of medical centres – International SOS, Raffles Orchard and Raffles Holland V; 
    3. Higher patient load factor by end-2017 when Raffles Hospital extension is completed by 2H17.
  • Maintain BUY with a SGD1.76 TP (22% upside).

Resilient healthcare spending aided by ageing population. 

  • Being one of the largest private medical groups in Singapore, we expect Raffles Medical Group (Raffles Medical) to benefit from Singapore’s ageing population as well as an increased sophistication in medical insurance plans. 
  • The supply shortage of public hospitals is likely to result in a spill over demand to private players. One such example is the Emergency Care Collaboration (ECC) – a joint initiative with the Ministry of Health – sees Raffles Medical managing emergency patients sent in by the Singapore Civil Defence Force (SCDF) ambulance. Moreover, despite news reports that Singapore has fallen behind in its ambitions in medical tourism, Raffles Medical has not seen a decline on its foreign patient load.

Strong growth pipelines. 

  • We expect Raffles Medical to deliver solid net profit growth of 27% in 2017 aided by a boost from rental income at Raffles Holland V mall. Some 95% of the space has been committed by end-2016. We expect majority of the tenants to move in by 1Q17. Virgin Active gym, which took up more than one floor of space, is set to open in Apr 2017. We believe the opening of the gym would bring more foot traffic to that mall.
  • In addition, operations of its new medical centres are improving. We expect operating profitability of the medical centres at Raffles Orchard and Raffles Holland V to turnaround in 2017 while International SOS is also expected to deliver a higher contribution.

New hospitals underway. 

  • The long-awaited Raffles Hospital extension is set to be completed by 2H17. We believe Raffles Medical would enjoy a higher patient load factor by end-2017. 
  • Its Shanghai hospital is also on track for completion by end-2018. We understand that the Group is trying to expand its team of international specialists as well. We believe that progress in its plan to expand (for new hospitals) in Beijing or Shenzhen would be a positive catalyst to the share price.

New era of growth. 

  • We like Raffles Medical for its strong growth pipeline, which is set to deliver from 2017 onwards. An ageing population and increased number of medical insurance policyholders would also support the resiliency of private healthcare spending in Singapore. 
  • Reiterate BUY with a DCF-derived TP of SGD1.76
  • Key risks include a further slowdown in Singapore’s medical tourism and delay in hospital construction.

Positive impact from ECC. 

  • The joint initiative with the Ministry of Health has Raffles Medical managing emergency patients sent in by the SCDF ambulance if it is the nearest available hospital. While margins are lower, the additional patient load from ECC helps to offset overheads and fill the 4 and 6-bedded wards, which are less popular in private hospitals. 
  • While the current contract ends in mid-2017, we believe the ongoing shortage of public healthcare services domestically is likely to constantly provide new opportunities for private healthcare players like Raffles Medical. 

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-05
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.760 Same 1.760