Raffles Medical Group - UOB Kay Hian 2018-10-30: 9M18 Results In Line; Building Up To Chongqing’s Launch


Raffles Medical Group (RFMD SP) - 9M18: Results In Line; Building Up To Chongqing’s Launch

  • Raffles Medical Group posted 9M18 net profit of S$49.1m (+0.8% y-o-y), in line with and accounting for 76% of our full-year estimate.
  • The group is building up to the launch of its hospital in Chongqing, expected by end-18. At the same time, it has kept costs relatively in check, with 3Q18 staff cost down 0.5% y-o-y.
  • Maintain BUY with a revised DCF-based target price of S$1.27.


9M18 results in line with expectations.

  • Raffles Medical Group’s (RFMD) 9M18 net profit of S$49.1m (+0.8% y-o-y) accounted for 75.7% of our full-year estimate. 3Q18 net profit was S$16.4m, up 0.1% y-o-y.
  • Considering that Raffles Medical Group had opened a new inpatient ward in its specialist centre this quarter, the continuing renovation works and had to contend with the start-up of the Chongqing hospital, results were very much encouraging.

Marginal improvement in revenue.

  • Raffles Medical Group’s3Q18 revenue edged up 1.2% y-o-y to S$119.8m. The healthcare services division recorded a revenue increase of 8.0% y-o-y while revenue of the hospital services division decreased 3.8% y-o-y in 3Q18. The revenue increase in the healthcare services division was attributed to a combination of factors: addition of new corporate clients, new Air Borders screening services contract and the insurance segment.
  • The lower hospital services revenue was due in part to the refurbishment of current inpatient facilities.

Consistent operating margins.

  • In terms of costs, staff cost remained relatively in check, decreasing 0.5% y-o-y in 3Q18. Depreciation of PPE increased 25.2% y-o-y to S$4.5m due to the new specialist centre.
  • Overall, operating cost increased only 0.5% y-o-y in 3Q18 and s remained flat y-o-y at 15.9%. The decrease in staff cost helped mitigate higher depreciation expense.


Chongqing Hospital slated to open by end-18.

  • The Chongqing hospital is on track for its launch in 4Q18. Although operational licences have not been issued, management does not see any potential obstacles.
  • Raffles Medical Group has made 100 staff hires to-date - 50 clinical staff, 25 support staff and 25 managerial staff. It will open the hospital with about 200 staff. Raffles Medical Group will also continue to variably add clinical and support staff in line with the hospital’s utilisation rate.
  • In terms of attracting patients, Raffles Medical Group’s partnership with China Taiping Insurance Group (CTIG) is a good long-term initiative, potentially gaining referrals and helping drive patient volumes to the hospital.
  • The Chongqing hospital will open with services such as health check-ups, pediatrics, obstetrics and gynecology segments.

Update on new insurance business.

  • The new Raffles Shield, a Medisave-approved Integrated Shield Plan (IP) providing insurance coverage for medical expenses, had begun marginal contributions, with around 100 policyholders. Ramp-up can be expected in the following quarter through distribution from some 2,000 independent financial advisors (IFA).

Weakness in foreign patient segment.

  • Foreign patient volume continues to be under pressure on the back of higher treatment and ancillary costs in Singapore. With the recent news in which the Ministry of Health (MOH) prohibits foreign agents who refer overseas patients to public hospitals, management expects some spillover effect into the private sector although the industry remains weak as a whole.


Earnings lowered slightly by up to 3%.

  • Going forward, we do see some slight effects of slowing revenue growth, with weaker foreign patient volume as an impeding factor. Although the group’s effective cost management has helped to mitigate the slowdown, guidance for Chongqing hospital start-up losses remain unchanged at an expected EBITDA loss of about S$10m in the first year of operation.
  • We tweak our 2019-20 net profit forecasts down by up to 3% as we factor in slower revenue growth from weaker foreign patient volume. However, we remain upbeat on the company’s prospects in its expansion efforts in China, given the recent insurance partnerships and staffing progression.


  • Maintain BUY with a revised target price of $1.27. This is DCF-based (WACC of 6.1% and terminal growth of 2.5%).


  • Potential catalysts include:
    1. strong pick-up from specialist extension, and
    2. execution of its new hospitals in China.

Lucas Teng UOB Kay Hian Research | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-10-30
SGX Stock Analyst Report BUY MAINTAIN BUY 1.27 DOWN 1.280