Raffles Medical Group - OCBC Investment 2018-09-24: Insurance Tie-up With China Taiping Insurance Group

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RAFFLES MEDICAL GROUP LTD SGX:BSL

Raffles Medical Group - Insurance Tie-up With China Taiping Insurance Group

• Strategic partnership.
• Benefits in both China and Singapore.
• Maintain Fair Value of S$1.26.

MOU with China Taiping Insurance Group (CTIG)

• Last month, Raffles Medical Group announced that the group has signed a Memorandum of Understanding with China Taiping Insurance Group (CTIG) to jointly provide medical/ healthcare insurance solutions as well as healthcare management services and explore health-related real estate opportunities. As we understand, apart from working capital, Raffles Medical Group would not be required to put up any significant capex, given that the initial costs would likely be confined to the joint marketing of products.
• In our view, this collaboration is a strategic and logical move for Raffles Medical Group, given the group’s existing clinics in China, as well as the upcoming opening of Raffles Hospital Chongqing and Raffles Hospital Shanghai in 4Q18 and 2H19, respectively. Also, the benefits to Raffles Medical Group should be seen back home as well.
• China Taiping Insurance Group has overseas businesses in the UK, Indonesia and Singapore, which are very much in-line with the Chinese government’s Belt and Road initiative, and the group is looking at ways to proactively provide risk protection and services for Chinese businesses overseas. To that end, this newly-minted relationship with Raffles Medical Group could help drive both individual and corporate loads to the latter’s network of island-wide clinics as well as to Raffles Hospital.

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National Day Rally (NDR) Takeaways

• Separately, recall also that at the last National Day Rally speech, Prime Minister Lee Hsien Loong touched on a number of key points pertaining to healthcare in Singapore. These include
  1. an expanded Community Health Assist Scheme (CHAS) to cover all Singaporeans with chronic conditions,
  2. a Merdeka Generation Package for those born between 1950-1959, and
  3. 6 more polyclinics by 2023.
• Interestingly, Raffles Medical Group’s share price fell 4.7% the next day, despite the general policy direction at making healthcare more affordable for more segments of society.
• In our opinion, point (3) might have been of some concern, given the possibility of it providing more competition to Raffles Medical Group’s clinics. However, this move is no surprise, given that a similar announcement was already made in the March 2018 Committee of Supply debate. As such, we think the new supply of healthcare provision has and should already been well internalized by the market.
• We maintain our fair value estimate of S$1.26 for now.

Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2018-09-24

SGX Stock Analyst Report BUY Maintain BUY 1.260 Same 1.260