Raffles Medical Group - OCBC Investment 2018-08-07: Entering The Integrated Shield Market

Raffles Medical Group - OCBC Investment Research 2018-08-07: Entering The Integrated Shield Market RAFFLES MEDICAL GROUP LTD SGX:BSL

Raffles Medical Group - Entering The Integrated Shield Market

  • No surprises in 2Q18.
  • Good progress on the insurance front.
  • Maintain Fair Value of S$1.26.

2Q18 results within expectations

  • Raffles Medical Group’s 2Q18 results were in-line with our expectations. Revenue grew 0.1% y-o-y to S$120.2m, constituting 23.7% of our full-year forecast.
  • The group’s Healthcare Services division saw revenue increase 5.4% y-o-y, buoyed by the addition of new corporate clients and a new contract to provide Air Borders screening services.
  • The Hospital Services division this quarter saw a y-o-y drop of 2.3% in revenue, due to softer than expected demand from foreign patients, even though local patients clocked a slight increase.
  • Staff costs dropped 2.4% y-o-y to S$60.2m, on the back of judicious management of variable costs. PATMI for the group grew 0.8% y-o-y to S$16.9m, which formed 24.9% of our full- year forecast.
  • An interim dividend of 0.5 S-cents per share has been declared, which is unchanged from that of 2Q17.

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Medical tourism prospects not the best

  • The boost from foreign patient loads in 1Q18 proved to be transient. Management did not sound too upbeat about the near-term prospects for this segment, given the relative strength of the S$ against a number of regional currencies, increase in professional fees, as well as availability of medical options regionally that cater to the more price-sensitive patients.

Pushing the insurance envelope

  • Raffles Medical Group has recently obtained regulatory approvals to enter into the Integrated Shield market, and has launched its shield product, Raffles Shield, officially on 1 Aug 2018. We understand from management that interest for this product is healthy, and it is possible to expect incremental revenue of S$10-12.5m per annum as a result of this. Net margins are expected to be ~5% on a long term basis, while that of the larger insurance business (Raffles Health Insurance) is about 3-4%.
  • The group has also entered into a strategic partnership with NTUC Income Insurance Company to offer NTUC IncomeShield policyholders access to its panel comprising specialists from Raffles Hospital as well as other private hospitals in Singapore.
  • We maintain our assumptions and fair value S$1.26 for now.

Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2018-08-07
SGX Stock Analyst Report BUY Maintain BUY 1.260 Same 1.260