Raffles Medical Group - OCBC Investment 2019-02-26: China Projections Remain


Raffles Medical Group - China Projections Remain

  • Raffles Medical Group’s FY18 results in-line.
  • Shanghai to complete in 4Q19.
  • Lower Fair Value of S$1.25.

In-line set of results

  • RAFFLES MEDICAL GROUP LTD (SGX:BSL)’s 4Q18 revenue increased 3.8% y-o-y to S$127.7m, while that of the full-year rose 2.4% to S$489.1m.
  • On the back of contribution from a new contract to provide Air Borders screening services as well as the addition of new corporate clients, the group’s revenue from Healthcare Services rose 6.0%.
  • Raffles Medical Group’s Hospital Services division in FY18 saw revenue dip slightly by 0.8% due in part to the refurbishment of inpatient facilities during the year. Depreciation for FY18 rose 19.3% to S$17.2m, largely due to the recently completed Raffles Specialist Centre.
  • Staff costs appear to be well-contained, with a drop of 3.3% y-o-y and 0.6% in 4Q18 and FY18, respectively. We understand that management has been careful in reviewing its manpower needs, even with natural attrition taking place.
  • FY18 PATMI rose 0.4% to S$71.1m, forming 104.8% of our full-year forecast. We deem this set of results to be broadly in-line with our expectations.
  • Raffles Medical Group has declared a full-year dividend per share of 2.5 S-cents, an 11.1% increase from FY17.

China guidance maintained

  • Management has guided that there remains no change to its forecast of start-up losses at its Chongqing hospital, which is at S$8-10m in 2019, and S$4-5m in 2020. We are mindful that these are early days as the hospital has only opened its doors for ~2 months, but we believe that management will maintain discipline in having 200 operational beds (out of 700) for the foreseeable future till demand warrants them to scale up.
  • Raffles Medical Group’s Shanghai hospital is slated to be completed in 4Q19. In terms of capex, we understand that over 50% and ~40% have been paid for the Chongqing and Shanghai hospitals, respectively.
  • In Singapore, we note that management remains cautious about the outlook for foreign load, given the presence of other regional alternatives. Raffles Medical Group is still in the midst of curating potential tenants for its Raffles Specialist Centre, as it seeks to attract third-parties who are able to provide synergies.
  • We roll-forward our valuations and our fair value estimate dips slightly from S$1.26 to S$1.25.

Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2019-02-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.25 DOWN 1.260