Raffles Medical - DBS Research 2017-02-21: FY16 results impacted by higher costs

Raffles Medical - DBS Vickers 2017-02-21: FY16 results impacted by higher costs RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical - FY16 results impacted by higher costs

  • FY16 net profit +1%; EBIT (ex-MCH) +4%.
  • 4Q16 results marginally weak (earnings -4% y-o-y).
  • 4Q16 EBIT margin fell 1.2ppt y-o-y to 21%.
  • Raffles Hospital Extension expected to open in 4Q17.

Maintain HOLD, TP at S$1.40. 

  • We maintain our HOLD rating with a reduced TP of S$1.40 (previously S$1.43) on 5-7% lower FY17FFY18F earnings. 
  • At its current valuation of 25x FY17F EV/EBITDA, the counter has reflected its growth potential, in our view. 
  • We project growth over the next few years to be a tad slower than its historical average following gestation period from its expansion plans.

4Q16 results marginally weak. 

  • FY16 net profit grew 1% y-o-y to S$70m, revenue rose (+15%) largely from newly acquired MCH, offset by higher expenses (31%) from start-up/integration costs.
  • FY16 EBIT (ex-MCH) grew 4%. MCH incurred an estimated loss of S$2.2m in FY16. 4Q16 net profit fell 4% y-o-y to S$22m, partly due to a muted revenue growth (+3% y-o-y) offset by higher expenses (+4%). 4Q16 EBIT margin fell 1.2ppt y-o-y to 21%.
  • Management remains positive on the outlook in IndoChina and China, and plans to open a couple of new medical centres in China partially to support its upcoming hospital in Shanghai.
  • Raffles Hospital Extension is expected to open in 4Q17.

Slower growth in the immediate horizon due to expansion plans.

  • The expansion plans remain on track in Singapore with Raffles Holland V opened in October 2016 and Raffles Hospital Extension expected to complete by 4Q17. 
  • Elsewhere, Shanghai Hospital’s completion is expected by late 2018. 
  • While we are positive on Raffles Medical's long-term growth plans, we expect near-term growth to be weighed down by gestation costs.


  • Our target price of S$1.40 is based on its historical average PE of 29x on average FY17F/18F earnings. 
  • Our estimates include S$0.15/share from the value of its Shanghai hospital.

Key Risks to Our View

  • Economic slowdown. While healthcare is relatively resilient, private healthcare could be impacted by a slowdown in the economy as elective procedures can be deferred or patients can choose public hospitals as a lower-cost alternative.

Rachel Lih Rui Tan DBS Vickers | Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2017-02-21
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 1.400 Down 1.430