Raffles Medical Group (RFMD SP) - Maybank Kim Eng 2017-02-21: Building sustainable growth

Raffles Medical Group (RFMD SP) - Maybank Kim Eng 2017-02-21: Building sustainable growth RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical Group (RFMD SP) - Building sustainable growth

Results in line; TP lowered 8% due to higher costs 

  • FY16 results were in line; earnings met 95% of our forecast and 98% of consensus. 
  • Core earnings grew 1% or 6-7% YoY if excluding the drag from newly acquired subsidiary, MCH. 
  • Revenue grew 15% YoY (7.5% excluding MCH); healthcare and hospital revenue rose 31% and 6% YoY, respectively.
  • Various expansions will continue to sustain growth: 
    1. c.50% of the floor space of the upcoming Raffles Hospital extension will be used to grow various specialties; 
    2. three new clinics will be opened in China; and 
    3. exploration of more M&A opportunities at attractive valuations amid the weaker economy. 
  • We cut our FY17-18E EPS by 8-10% for higher start-up costs ahead of Raffles Hospital’s extension. Maintain BUY with DCF-based TP reduced 8% to SGD1.70.

MCH integration will take time but remains priority 

  • Restructuring costs for MCH, acquired in 4Q15, continued to drag earnings. 
  • Management expects progressive improvement and has placed a high priority on the integration. To accelerate the process, the country head has been appointed to spearhead the operations in China and Indochina. 
  • Raffles’ operations in Cambodia and several clinics in China are improving. In the future, MCH plans to set up more clinics overseas.

Singapore operations remain healthy 

  • Medical Centre in Holland Village reached break even in Dec 2016, while several divisions in the Orchard Medical Centre have also broken even.
  • The extension of Raffles Hospital is expected to be completed in 4Q17; the new building will enable an expansion of various key specialties. This will free up space for the existing building to increase the number of beds. 
  • Management targets to use 50% of the floor area and rent out the remaining new space.

Positive on China expansion 

  • Construction of its Shanghai hospital is progressing well; three new clinics will be opened in China before the hospital starts in 2019 to expand the referral network and branding. 
  • Key challenges are regulations and ability to attract skilled doctors. 
  • With a track record of recruiting and managing c.80 doctors overseas, out of 380 in total, management is confident in its ability to attract more capable doctors.

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/ 2017-02-21
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.700 Down 1.850