Raffles Medical Group - CGS-CIMB Research 2019-04-29: 1Q19 Chongqing’s EBITDA loss in line


Raffles Medical Group - 1Q19: Chongqing’s EBITDA loss in line

  • Raffles Medical Group's 1Q19 net profit of S$13.6m (-13.7% y-o-y) in line, and included Chongqing hospital’s S$1.8m EBITDA loss, likely its quarterly run-rate for FY19F.
  • New contracts and higher bill intensity drove 6.7% y-o-y topline growth
  • Maintain HOLD; faster ramp-up in patient volume is key catalyst.

Raffles Medical's 1Q19 net profit met our and consensus expectations

  • RAFFLES MEDICAL GROUP LTD (SGX:BSL) reported 1Q19 net profit of S$13.6m, down 13.7% y-o-y mainly due to gestation costs from its Chongqing Hospital (opened in Jan 2019). This figure formed 25% of our and 24% of Bloomberg consensus full-year forecasts. Excluding the S$2.2m net loss from Chongqing hospital, 1Q19 net profit would have increased 2.1% y-o-y to S$15.8m.
  • Raffles Medical Group's 1Q19 EBITDA was flat y-o-y at S$23.6m, which included S$1.8m operating expenses from the Chongqing hospital; otherwise operating EBITDA would have improved 9.3% y-o-y to S$25.4m.
  • We saw little impact from the adoption of new SFRS 16 – operating lease expenses were S$1.6m lower, which was offset by S$2.2m rise in depreciation costs.
  • Net gearing crept up to 4.0% as of end-1Q19, from 1.3% as of end-4Q18.

China: on track with S$8m-10m EBITDA loss guidance

  • As 1Q is seasonally weak for Raffles Medical Group due to festivities, revenue contribution from its Chongqing hospital remains insignificant. The group appears to be gaining traction with 500 patients YTD (mostly cash-paying) and average pricing of 10-20% below its Singapore peers. We think S$1.8m EBITDA loss could be the quarterly run-rate until additional hiring (current headcount of 200) and more beds (now: c.100) are required.
  • Raffles Medical Group has appointed some international insurance companies onto its panel and secured some contracts with multinational companies in China. Meanwhile, it continues to engage with local insurance entities and state-owned enterprises (SOEs).

Domestic operations pulling the weight

  • Raffles Medical Group's 1Q19 topline was up 6.7% y-o-y at S$128.3m, as hospital revenue grew 3.2% y-o-y on the back of higher utilisation of inpatient capacity, and earlier refurbishment of the older wards has largely been completed. Higher insurance premium from new and existing clients, together with the addition of its eight clinics to the Primary Care Network (government scheme), led to a 8.9% y-o-y rise in healthcare services revenue.
  • Overall patient volume was stable in 1Q19, with slightly higher average bill intensity. We expect revenue growth from its domestic operations to be sustained by a new contract to provide institutional medical services under the Ministry of Social and Family Development, as well as new corporate clients.

Maintain HOLD, re-rating will come from faster ramp-up

  • We keep our FY19-21 forecasts, SOP-based Target Price of S$1.19 and HOLD call unchanged.
  • Upside/downside risks could stem from overseas execution and regulatory changes.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2019-04-29
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.190 SAME 1.190