Raffles Medical Group (RFMD SP) - Maybank Kim Eng 2018-02-27: Growing Discomforts

Raffles Medical Group (RFMD SP) - Maybank Kim Eng 2018-02-27: Growing Discomforts RAFFLES MEDICAL GROUP LTD BSL.SI

Raffles Medical Group (RFMD SP) - Growing Discomforts

Core profit in line; expansion on track 

  • Raffles Medical Group's FY17 core earnings met 100% of ours and 104% of the consensus estimate. Revenue and core earnings were nearly flat at +1% y-o-y. 
  • The main drag came from the underperforming insurance business, as competition intensified. For FY18, the healthcare business should pick up slightly and rental income should increase from two projects, but these will be negated by the start-up costs for the Chongqing hospital. Both China hospitals remain on track. 
  • Maintain HOLD and DCF-based Target Price of SGD 1.13 (WACC 7.1%; LTG 1.5%).

Singapore business expected to recover slightly 

  • Management expects the Singapore business to improve in 2018, from:
    1. completed expansion of Raffles Hospital, which started operation in Jan 2018;
    2. further collaboration with the Ministry of Health (MOH) to manage chronic conditions of Singaporeans and permanent residents; and 
    3. air borders screening contract by MOH and the Civil Aviation Authority.
  • On the other hand, the insurance segment should continue to remain soft, with minor recovery, as the industry remains lacklustre.

First China hospital scheduled to start in 4Q18 

  • Raffles Hospital Chongqing is progressing according to plan towards startup in 4Q18. Staff recruitment has started. It is currently negotiating contracts and the staff is not expected to join until around Jun 2018.
  • Management has identified several channels to attract patients and build brand awareness:
    1. collaboration with insurance groups;
    2. social media marketing; and
    3. provision of selective public healthcare services.
  • Raffles Hospital Shanghai is also progressing according to plan to start-up in 2H19.

Start-up costs expected to peak in 2H19 

  • Management expects the start-up costs of Raffles Hospital Chongqing to result in a negative EBITDA of SGD8-10m in the first year, SGD4-5m in the second year and breakeven in the third year. 
  • Assuming Shanghai Hospital incurs similar start-up costs, the start-up loss should peak in 2H19, when it starts operation.

Swing Factors


  • Further progress on more hospitals in China, which could be in other top cities. Shenzhen hospital first announced in Feb 2013.
  • Faster-than-expected breakeven for Singapore expansion.
  • Normal breakeven period is one year.
  • Medical tourism in Singapore could recover from 2015 weakness as RFMD is constantly seeking new source markets.


  • Execution risks for Shanghai hospital, its first outside Singapore.
  • Higher-than-expected start-up costs in major expansion markets such as China.
  • Structural decline of medical tourism in Singapore.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-02-27
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.130 Same 1.130