Raffles Medical Group (RFMD SP) - Maybank Kim Eng 2017-03-30: Building sustainability

Raffles Medical Group (RFMD SP) - Maybank Kim Eng 2017-03-30: Building sustainability RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical Group (RFMD SP) - Building sustainability

Key discussions: expansion projects and MCH 

  • We hosted Raffles Medical at our Invest ASEAN Singapore Conference on 21 Mar 2017. Key discussion points included: 
    1. its China expansion plans and future prospects; 
    2. local operation updates; and 
    3. restructuring of newly-acquired MCH. 
  • In the near term, there are several headwinds, including the restructuring costs of MCH, lacklustre medical tourism and start-up costs of new projects. However, long-term prospects remain sound given its initiative to expand overseas and strong execution track record. 
  • Maintain BUY with DCF-based TP SGD1.70 (WACC 7.1%; LTG 1.5%).

Positive on China; Shanghai hospital progressing well 

  • Management highlighted the exciting potential for its China operations, given the huge population, quality concerns and high spending power. A good example is the high tuition fees for private schools in China, which could cost CNY150k per term. 
  • The Shanghai hospital is progressing according to plan and it’s expected to open in early 2019. Currently, piling works are being carried out and management is evaluating which contractors to use for the hospital building.

Local hospital extension on track, mixed outlook 

  • The Raffles Hospital extension is on track to open in late 2017. The current capacity utilisation remains efficient due to its tie up with the government under emergency collaboration care. 
  • The new Holland Village medical centre has broken even in just seven months and 95% of the space has been committed. 
  • For Shaw Centre, it is still loss making, but management aims to achieve break-even in 2017. 
  • Medical tourism from the traditional markets has slowed down, but this is slightly offset by increased patients from new markets, including Indochina and China.

MCH restructuring is progressing but will take time 

  • Restructuring of MCH acquired from International SOS in 4Q15 will take time, as the business model is being expanded to serve the mass market from just its own members. However, progress has been made in reducing the staff cost as a % of revenue to 57% from 60%. 
  • The target is to grow both the topline and manage staff costs to boost profitability.

Swing Factors


  • Further progress on 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 period 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/ 2017-03-30
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.700 Same 1.700