Raffles Medical Group - RHB Invest 2017-04-04: To Open a New Hospital In Chongqing In 2018

Raffles Medical Group - RHB Invest 2017-04-04: To Open a New Hospital In Chongqing In 2018 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: 
    1. The Raffles Hospital extension, which is scheduled to kick off operations in 2H17; 
    2. The opening of the Chongqing hospital in 2Q18; 
    3. The opening of its Shanghai hospital in end-2018.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-04-04
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.720 Same 1.720