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

RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical - A Slow Start

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).

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.

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.

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