Raffles Medical Group - RHB Invest 2017-10-31: Uninspiring Set Of Results

RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical Group - Uninspiring Set Of Results

Raffles Medical recorded another flat quarter. 3Q17 PATMI came in at SGD16.4m (+1% YoY). However, given that its share price has dropped 18% since the poor set of results last quarter, we upgrade our recommendation to NEUTRAL (from Sell) with an unchanged DCF-derived TP of SGD1.10 (4% downside).

The Singapore healthcare market is rather matured. As such, the timeline to the turnaround of the new Chinese hospitals is the key swing factor to its future earnings.

Hospital services grew 3.1% in 3Q17 mainly led by the growth in local patient load. According to management, foreign patients remained relatively stagnant. However, the overall revenue growth was partially offset by a revenue decrease of 4.2% in healthcare services due to a lower renewal of international insurance plan for expatriates.
Given the lacklustre growth in hospital services revenue over the past nine months, we are not particularly excited with the Raffles Medical Hospital extension coming on stream in December this year.

Management finally gave more colour on the upcoming Chinese hospitals during its analyst briefing. It expects each hospital to make an EBITDA loss of SGD8-10m in the first year, SGD4-5m EBITDA loss in the second year, followed by an EBITDA breakeven in the third year.
Chongqing hospital is set to open in 4Q18F with approximately 300 operational beds. Of which, 100 beds would be catered to the public at subsidised prices.
The Shanghai hospital is expected to open in 4Q19.

Our TP remained unchanged at SGD1.10 but we upgrade our recommendation to NEUTRAL as valuation of the stock has came off.
We think earnings would be rather unexciting over the next 2-3 years due to the high start-up costs and ramp-up phase for the new Chinese hospitals.
Key risk lies in the execution of the Chinese hospitals as well as the receptiveness of Mainland Chinese to the Raffles hospital’s brand name.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-10-31

RHB Invest SGX Stock Analyst Report NEUTRAL Upgrade SELL 1.100 Same 1.100