Raffles Medical Group - UOB Kay Hian 2018-07-24: 2Q18 Results Preview ~ No Surprises Expected; Making Strategic Moves

Raffles Medical Group (RFMD SP) - UOB Kay Hian Research 2018-07-24: 2q18 Results Preview ~ No Surprises Expected; Making Strategic Moves RAFFLES MEDICAL GROUP LTD SGX:BSL

Raffles Medical Group - 2Q18 Results Preview ~ No Surprises Expected; Making Strategic Moves

  • We do not expect any surprises in Raffles Medical Group’s upcoming 2Q18 results announcement on 6 August. The recent move to launch Raffles Shield is a positive strategic move and the Chongqing hospital opening is progressing well.
  • Separately, Raffles Health Insurance announced a partnership with NTUC Income to launch the IncomeShield Private Specialist Panel. There is no change to our 2018-20 estimates.
  • Maintain BUY with a lower DCF-based target price of S$1.28 (previously S$1.32).


No surprises expected for 2Q18 results; managing costs remains key.

  • Raffles Medical Group (RMG) is expected to release its 2Q18 results on 6 Aug 18. We do not expect any major surprises (2Q results typically account for 23.5-24.8% of full-year estimates) and expect a gradual rise in costs ahead of the opening of its RMG Chongqing (CQ) hospital in 4Q18. io.

Recent launch of Raffles Shield, an approved Integrated Shield Plan (IP).

  • Raffles Shield will be a Medisave-approved IP providing coverage for hospital and surgical expenses, making Raffles Medical Group the 7th player in the industry. An IP comprises MediShield Life, a national health insurance plan administered by the Central Provident Fund Board, and an additional private insurance coverage. The new IP is expected to be available from 1 August. io.

Positive development from Raffles Health Insurance partnership with NTUC Income.

  • The latest strategic partnership, announced today, aims to introduce the IncomeShield Private Specialist Panel, offering NTUC IncomeShield policyholders access to over 200 medical specialists via the panel. It will also extend clinical indicator assessment to NTUC Income as part of the partnership and is a further testament to the benefit of Raffles Medical Group’s group practice model. io.


The start of many firsts.

  • Marking the first Integrated Shield Plan (IP) product designed by medical experts, Raffles Shield will also be the first IP to offer a High Deductible Option of S$10,000 instead of S$3,500. This allows policyholders to pay premiums that are 20% to 30% lower, targeting working adults opting for flexible and reasonable coverage. The new IP introduced coverage for common pre-existing conditions - high cholesterol, diabetes and hypertension - as long as policyholders comply with a care management plan for their condition. io. 
  • Currently, about two in three of Singapore's local population have IPs.

Strategic moves remain a long-term positive.

  • With its tie-up options for Raffles Hospital. io.
  • Though drawing market share can be challenging in a competitive space, Raffles Medical Group’s move into IP can be a stepping stone for insurance provision when its China hospitals finally take off.

Aligning with regulatory recommendations for managed, affordable medical care.

  • Raffles Medical Group latest strategic partnership with NTUC Income aligns with the Health Insurance Task Force’s (HITF) recommendation in 2016 to manage medical care and health insurance costs in Singapore. Providing an incentive for policy holders to reduce costs, it attempts to draw market share of patients, potentially extending its presence. io.

On track in Chongqing.

  • The Chongqing hospital is on track to commence operations in 4Q18, with a soft launch expected soon. We understand that approximately 10-12 medical leaders have been appointed to head operations in Chongqing hospital. Hiring of local Chinese medical professionals has also started, with the hospital slated to provide dental and dermatology services among others. io.

Cost management in China.

  • We believe doctors already in service to reduce idle costs to the group. io.


2018-20 earnings forecasts unchanged.

  • On our latest estimates, we forecast a gradual recovery in profitability (net profit to rise to 5% y-o-y post-2020). io. 


  • Maintain BUY on a long-term view with a lower DCF-based target price of S$1.28 (previously S$1.32). This is to reflect a 25bp rise in our risk-free rate assumption to 2.75% and adjusted terminal growth of 2.5% (previously 2.0%). 
  • Our target of 32.9x. 
  • We believe the premium valuation is justified given the strategic plans as well as the solid long-term growth runway that the new hospital capacity in China will bring - a potential upgrade of almost four times its current capacity. io.

Lucas Teng UOB Kay Hian Research | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-07-24
SGX Stock Analyst Report BUY Maintain BUY 1.28 Down 1.320