Raffles Medical Group - Maybank Kim Eng 2018-05-01: A Decent Start; Wait For Finish

Raffles Medical Group - Maybank Kim Eng 2018-05-01: A Decent Start; Wait For Finish RAFFLES MEDICAL GROUP LTD SGX: BSL

Raffles Medical Group - A Decent Start; Wait For Finish

China expansion on track to fuel long-term growth

  • Both China hospitals remain on track and should reignite earnings growth for Raffles Medical after start-up costs in 2018-19 have passed. 
  • Maintain HOLD and DCF-based Target Price of SGD 1.13 (WACC 7.1%; LTG 1.5%). 
  • 1Q18 core earnings met 24% of ours and 25% of the consensus estimate; Revenue and core earnings grew 4.6% and 1.7%, respectively y-o-y. The growth came from an increase in patient volume, a new contract and lower base vs. 1Q17. 
  • For FY18, the healthcare business and rental income should increase from two projects, but these will be negated by the start-up costs for the Chongqing hospital.

Slight recovery in Singapore

  • Revenue from the Healthcare Services division and Hospital Services division grew by 6.8% and 4.2%, respectively y-o-y. Growth in the Healthcare Services segment was mainly due to increase in local patient load and a new contract providing air borders screening services. 
  • Local patient volume also contributed to most of the growth in the Hospital Services segment but foreign patients have also started to recover after several quarters of decline. We think the growth also came from a lower base. To recap, revenue fell by 1.7% y-o-y, due to weak insurance business. 
  • Separately, the hospital extension started on 22 Jan 2018. With the relocation and expansion of 15 specialist centres to the new building, the old building is undergoing refurbishment to expand its capacity. 
  • Very few new doctors were added in 1Q18 as most recruitment was done ahead of the expansion. Management expects to recruit gradually as demand increases.

China hospitals on track

  • The Chongqing hospital is progressing according to plan. Recruitment of physicians and hospital management staff has started; 20-30% of the medical staff have been hired and a medical director has been appointed. Most of the remaining staff are expected to join in 3Q18. 
  • As previously disclosed, management expects to start with 200 private beds. However, the public beds are expected to start later as the details are still being sorted out. 
  • The Shanghai hospital is on track to open in 2H19, with 200 beds initially.

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 | https://www.maybank-ke.com.sg/ 2018-05-01
SGX Stock Analyst Report HOLD Maintain HOLD 1.130 Same 1.130