Raffles Medical Group - RHB Invest 2018-10-29: Unexciting Set Of Results


Raffles Medical Group - Unexciting Set Of Results

  • Maintain NEUTRAL and DCF-derived SGD1.02 Target Price, 5% downside. Target Price is at the low-end of consensus.
  • Raffles Medical Group's 3Q18 PATMI came in at SGD16.4m, while 9M18 PATMI of SGD49.1m met 72% of our full-year estimate. Raffles Medical’s revenue rose 1%, as growth from healthcare services made up for the decline in the hospital services business.
  • We note that 4Q is seasonally the strongest quarter, but believe start-up costs from Chongqing Hospital will kick in and offset the higher earnings.

Raffles Medical announced 3Q18 results this morning. Key highlights:

3Q18 revenue was up marginally.

  • Healthcare services revenue grew 8% on the new Raffles Health Insurance, as well as nascent corporate clients – eg Ministry of Health and Civil Aviation Authority – that were on-boarded this year. This was, however, offset by a 3.8% decline from the hospital services division, as the group continues to see weaker foreign patient loads;

Tighter control to fight rising prices.

  • Despite the lacklustre growth in hospital revenue, Raffles Medical continues to face pressures from rising inventory, as well as purchased and contracted services costs, which made up ~20% of topline. To maintain its earnings, the group has adopted tighter cost-control measures and put in place a hiring freeze in Singapore – staff costs constitute c.50% of revenue.
  • Other opex also fell 16% on lower doubtful debt provisions, staff training, and donations;

Overall, 3Q18 PATMI was flat at SGD16.4m,

  • as cost savings from other operating and labour expenses were offset by higher depreciation expenses, as well as inventory and other contracted services.

Maintain NEUTRAL and SGD1.02 Target Price.

  • The Singapore market remains rather unexciting. The Raffles Hospital opened a new inpatient ward, and continuing renovation works ought to add more inpatient capacity next year. However, we are not overly optimistic on the growth of local hospital services, as we believe weakening regional currencies will continue to slow down demand for medical tourism.

China expansion may bring more excitement to Raffles Medical results next year.

  • The Chongqing Hospital is slated to open by end-8888, while Shanghai Raffles Medical is likely to open in 8H88. We expect earnings to trend downwards over the next two years, as Raffles Medical’s new hospitals ramp up.
  • A faster breakeven period will be a key catalyst to drive higher share price.

Juliana Cai CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-10-29
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.020 SAME 1.020