Raffles Medical - DBS Research 2017-04-25: A Slow Start

Raffles Medical - DBS Vickers 2017-04-25: A Slow Start RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical - A Slow Start

  • 1Q17 stable y-o-y; 20% of consensus FY estimates.
  • Revenue fell 2% y-o-y on slower medical tourism.
  • Plans to open 200 private and 100 public beds in Chongqing by 2018.
  • Targets to open 200 beds in Shanghai by 2019.

Maintain HOLD, TP at S$1.40. 

  • We maintain our HOLD rating with TP of S$1.40. At its current valuation of 24x 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 (Raffles Hospital Extension and two new hospitals in China by 2018/2019).

A slow start. 

  • 1Q17 net profit was flat y-o-y at S$16m, 20% of consensus FY17E estimates. Raffles Medical recorded its first decrease in revenue albeit marginal (-2% y-o-y), largely impacted by softer demand from foreign patients in Singapore and marginally lower revenue from MCH. 
  • Key positives: 
    1. operating expenses well managed (-2% y-o-y), and 
    2. Raffles Holland V clinics had broken even in seven months. 
  • Key negatives: 
    1. revenue fell marginally, and 
    2. MCH and Shaw Centre have yet to break even.

Slower growth in the immediate horizon due to expansion plans.

  • The expansion plans remain on track with Raffles Hospital Extension expected to complete by 4Q17, the newly announced 700-bed Chongqing Hospital to open by mid-2018, and Shanghai Hospital targeted to complete by end-2018 and to open by 2019.
  • 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/ 2017-04-25
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 1.400 Same 1.400