Raffles Medical Group - Phillip Securities 2018-05-02: Sign Of Stronger Pulse

Raffles Medical Group - Phillip Securities 2018-05-02: Sign Of Stronger Pulse RAFFLES MEDICAL GROUP LTD SGX: BSL

Raffles Medical Group - Sign Of Stronger Pulse

  • Raffles Medical Group 1Q18 Revenue/PATMI met 23.5%/23.1% of our full year expectations. 
  • Stronger performance on uptick in private healthcare service demand in 1Q18.
  • New capacities in Singapore and China to meet growing regional healthcare needs. 
  • Maintained ACCUMULATE with unchanged Target Price of S$1.32.

The Positives

+ Recovery in Healthcare services, driven by higher local patient load. 

  • Healthcare services (Clinic) turnaround with a strong 6.8% y-o-y growth in 1Q18, after a contractionary 1Q17 and FY17 at -2.0% and -1.6% respectively. The Public-Private Partnership, namely the PCN Scheme (Primary Care Network) and the Air Borders Screening contract with MOH (Ministry of Health) have lent support in the uplift.

+ Hospital services gaining momentum with expanded capacity in RafflesSpecialistCentre.
  • The new RafflesSpecialistCentre commenced operation since 22 Jan-18. The segment registered 4.2% y-o-y growth as compared to -1.9% in 1Q17. Commendable, Management shared that foreign patient load grew c.2% y-o-y in 1Q18, despite persistent headwinds in medical tourism, particularly a strong SGD.
  • With the relocation and expansion of 15 specialist centres to the new RafflesSpecialistCentre, RafflesHospital is now undergoing refurbishment. By 3Q18, the Group will have expanded bed capacity and outpatient primary care centres to cater for the growing local and foreign demand.

The Negative

- Operating margin likely to remain under pressure.

  • Recruitment drive for medical staff and hospital management staff for RafflesHospital Chongqing have commenced. 3Q18 and 3Q19 will likely to see a greater margin squeeze with Raffles Hospital Chongqing and Raffles Hospital Shanghai scheduled to open in 4Q18 and 4Q19 respectively. 
  • We expect staff costs to remain above 50% of Group’s revenue in coming years when patient volumes picks up in Raffles Specialist Centre, MCH (MC Holdings) and the two new hospitals in China.


  • Outlook remains positive despite medium-term margin pressures from higher staff costs and start-up costs from the gestation of its two new China hospitals. The public service outsourcing could add another 5% to Healthcare service in FY18e. These initiatives could expand potential patient pool, as well as increase utilization rate of its existing facilities (i.e. higher productivity and enhanced efficiency).

Maintained ACCUMULATE with unchanged Target Price of S$1.32

  • We remain upbeat on the potential growth that these new hospitals in China would bring to the Group:
    1. Diversification with a higher contribution for overseas operation; and
    2. Tapping into China’s growth.

Potential re-rating catalysts:

  1. Stronger demand from the MOH partnership; and
  2. Better than expected performance in China hospitals

Soh Lin Sin Phillip Securities | https://www.stocksbnb.com/ 2018-05-02
SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 1.320 Same 1.320