RAFFLES MEDICAL GROUP LTD
BSL.SI
Raffles Medical Group - To Open a New Hospital In Chongqing In 2018
- Yesterday, Raffles Medical announced that it will develop a new hospital in Chongqing, China which will have a capacity of 700 beds. The hospital, currently under construction, is expected to commence operations in phases from Aug 2018 onwards.
- While we make no changes to our forecast and TP at the moment – as management said that more details would only be given in 2Q17 – our early-stage forecast estimates this project to potentially add SGD1.12/share to Raffles Medical’s value, based on a progressive 5-year capacity ramp-up period.
- We keep our BUY call on the stock, with an unchanged TP of SGD1.72 (20% upside).
Chongqing is one of the fastest-growing municipalities.
- The new hospital will be in Chongqing, a municipality with over 30m in population and a gross state product CAGR of 7.4% for the next four years (based on BMI Research’s projections).
- According to management, there is no international hospital in Chongqing at the moment. Hence, the new facility would be poised to serve the higher- to middle-class locals and expatriates in the city.
Immense potential worth SGD1.12/share.
- Including the CNY188m consideration payable for the land and construction incurred, management expects the development to cost around CNY1bn (SGD203m).
- As management has only provided limited details at this point, we estimate returns for this new hospital on a standalone basis. In our calculation, we imputed a 5-year ramp-up period as well as average inpatient and outpatient revenue of listed hospitals operating in China. Assuming that Raffles Medical will own a 100% stake, we believe this hospital could add SGD1.12/share to our current TP of SGD1.72.
- Nevertheless, management said that if a suitable partner comes along, it may sell some of its holdings but retain a majority stake.
Reiterate BUY and a TP SGD1.72.
- We make no change to our estimates as we await more details from management in the next results briefing.
- While the new hospital is likely to incur some start-up expenses in FY18 and FY19, we believe in the long-term growth prospects of Raffles Medical as it has three new hospitals underway:
- The Raffles Hospital extension, which is scheduled to kick off operations in 2H17;
- The opening of the Chongqing hospital in 2Q18;
- The opening of its Shanghai hospital in end-2018.
Juliana Cai CFA
RHB Invest
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http://www.rhbinvest.com.sg/
2017-04-04
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