Raffles Medical Group - RHB Invest 2019-02-26: Prepping For A China Growth Story

RAFFLES MEDICAL GROUP LTD (SGX:BSL) | SGinvestors.io RAFFLES MEDICAL GROUP LTD (SGX:BSL)

Raffles Medical Group - Prepping For A China Growth Story

  • Still NEUTRAL with DCF-derived Target Price of SGD1.02, 9% downside, and 2.2% FY19F yield.
  • RAFFLES MEDICAL GROUP LTD (SGX:BSL) registered FY18 PATMI of SGD71.1m. 4Q18 PATMI of SGD21.9m was above ours as well as consensus’ expectations as the soft launch of Chongqing Hospital only took place on 2nd Jan 2019.
  • Given the bulk of the opening costs for Chongqing hospital got pushed back to 1Q19 and Shanghai hospital is now expected to commence operations in 4Q19, we lower 2-5% our FY19-20F earnings.



Earnings drivers.

  • Raffles Medical Group’s 4Q18 revenue grew 4% y-o-y largely driven by a 4% growth increase in healthcare services division, which signed lucrative contracts with new corporate clients; the hospital services division however declined 1% due to refurbishment works in the old Raffles Hospital arm.
  • The group exercised a greater cost control in staff expenses. As a percent of revenues, during 4Q18, staff cost fell to slightly below 50% while for the full year, it was 50.3%.
  • Part of the improvement in cost structure was attributed to its 80%-owned subsidiary, MCH holdings, which saw the proportion of staff costs dropping to c.50% of revenue from 65% two years ago.


Guidance on China hospitals intact.

  • Management expects each of its hospitals in China to incur EBITDA losses of SGD8-10m in the first twelve months of operations and SGD4-5m during the second year, before reaching EBITDA breakeven in the third year. As such, we expect results during FY19- 20 to take a dip from the levels achieved in FY18, before recovering in FY21F.

We lower 2-5% our forecasts for FY19-20

  • We lower 2-5% our forecasts for FY19-20 due to a delay in cost recognitions.
  • Currently, only 10-20% of the space in Raffles Medical extension has been tenanted out. Higher-than-expected rental income upon leasing out the available commercial and office space, could help mitigate the decline profit from the new hospitals’ start-up costs.





Juliana Cai CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-02-26
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.020 SAME 1.020



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