Raffles Medical Group - OCBC Investment 2018-10-30: Game Time


Raffles Medical Group - Game Time

  • No big surprises in 3Q18.
  • Final touches to Raffles Hospital Chongqing.
  • Maintain Fair Value of S$1.26.

In-line scorecard

  • Raffles Medical Group 3Q18 results were in-line with our expectations. Top-line grew 1.2% y-o-y to S$121.0m, due largely to a 8.0% y-o-y revenue increase in the group’s Healthcare Services division. This was due to a mix of new corporate clients as well as the new contract to provide Air Borders screening services.
  • We understand that contribution from Raffles Shield was minimal in 3Q18, but should step up in 4Q18 onwards.
  • The healthy performance in the Healthcare Services division was, however, partially offset by the 3.8% y-o-y drop in revenue from the group’s Hospital Services division, which was in part due to the refurbishment of current inpatient facilities.
  • We note that Raffles Hospital opened a new inpatient ward in 3Q18, catering to patient needs under the Emergency Care Collaboration with the Ministry of Health.
  • Management has guided that the bulk of the inpatient renovation has already been completed, though we expect continued softness from weaker foreign patient load.
  • PATMI for the quarter grew 0.1% y-o-y to S$16.4m, forming 24.2% of our full-year forecast. We deem this set of results to be broadly within expectations.

Getting ready to roll out in Chongqing

  • Management has guided that that they have hired ~100 staff, which include specialists covering the main practices offered by Raffles Hospital Chongqing, which will open in 4Q18. As we understand, the group could add another ~100 staff to its headcount in the near future (with a greater portion of clinical and administrative/support staff vs. managers).
  • Staff costs have been well contained in 3Q18 (-0.5% y-o-y), but we expect this to start creeping up from 4Q18.
  • We note that there are some final regulatory hurdles to cross, but management is fairly optimistic of getting the requisite approvals.
  • EBITDA start-up losses for the 1st and 2nd year of operations are still expected to be S$8-10m and S$4-5m, respectively, before achieving break-even in the 3rd year. At this juncture, we believe that the street has largely accounted for these, and a key catalyst would be the narrowing of losses for Raffles Hospital Chongqing.
  • For now, we maintain our Fair Value estimate of S$1.26.

Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2018-10-30
SGX Stock Analyst Report BUY MAINTAIN BUY 1.260 SAME 1.260