Raffles Medical Group - CGS-CIMB Research 2019-02-26: All Eyes On Chongqing In 1Q19F

RAFFLES MEDICAL GROUP LTD (SGX:BSL)

Raffles Medical Group - All Eyes On Chongqing In 1Q19F

Raffles Medical Group’s FY18 core PATMI of S$67.7m (flat y-o-y) met consensus expectations but was slightly above ours; EBITDA up 7.8% y-o-y on higher operating leverage.
YTD patient volumes at Chongqing hospital still not meaningful due to festive holidays, but start-up costs are within initial guidance of S$8m-10m.
We keep our HOLD call with an unchanged target price; better cost visibility in 1Q19F.

RAFFLES MEDICAL GROUP LTD (SGX:BSL)’s FY18 core PATMI (excluding fair value gains of investment properties) was flat at S$67.7m, which came in line with consensus full-year forecasts but slightly above ours, as operating costs from the new Chongqing hospital (opened on 29 Dec 18) have largely been deferred to FY19F.
FY18 EBITDA of S$102.5m was a positive surprise as it increased 7.8% y-o-y on higher operating leverage.

Raffles Medical Group’s topline grew marginally by 2.4% y-o-y in FY18, largely due to a 6.0% increase in healthcare services as there was a new screening contract and addition of corporate clients. This mitigated a 0.8% y-o-y revenue drop in hospital services, which was a result of the refurbishment of some current inpatient facilities.
With this largely completed, we expect stronger growth in Singapore operations from FY19F, driven by diversification of its patient markets, and the roll-out of enhanced health subsidies from the government.

While Raffles Medical Group's Chongqing hospital received all the necessary approvals in late-Dec 18, management expects patient footfall to ramp up post the festive period, and is targeting official opening closer to the end of 1H19. Initial guidance of an S$8m-10m EBITDA loss in the first year of operations is unchanged, and the hospital currently has about 200 staff in Chongqing, including 50 full-time specialists and doctors.
Construction of the Shanghai hospital is progressing well, with estimated completion in 4Q19F.

Raffles Medical Group also embarked on digitalisation via a new RafflesConnect platform in partnership with Doctor World, which enables patients to better engage with their doctors and improve monitoring of care.
Its recent introduction of Raffles Shield continues to gain traction, with more differentiated products and tie-ups with distribution agents.

As we update our assumptions to reflect a slightly later opening of the Shanghai hospital (estimated completion of construction in 4Q19F) and expanded share base, our FY19- 20F EPS falls by 2.4-3.7%. We also introduce our FY21F forecasts; our HOLD rating and SOP-based Target Price of S$1.19 remain intact.
Upside/ downside risks to our HOLD call could stem from overseas execution and regulatory changes.
Raffles Medical Group also announced a final DPS of 2.0 Scts, bringing FY18 DPS higher to 2.5 Scts.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-26

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.190 SAME 1.190