Raffles Medical Group - UOB Kay Hian 2019-04-30: 1Q19 In Line; Still On Track In Chongqing

RAFFLES MEDICAL GROUP LTD (SGX:BSL)

Raffles Medical Group - 1Q19: In Line; Still On Track In Chongqing

Seasonally weaker 1Q19 net profit of S$13.6m (-13.7% y-o-y) came in within our forecast, accounting for 23.5% of our full-year estimate.
Raffles Medical Group received its first contribution from Chongqing Hospital, albeit marginal. Ramp-up of hospital operations will continue with a corresponding increase in demand.
Maintain BUY and DCF-based target price of S$1.30.

RAFFLES MEDICAL GROUP LTD (SGX:BSL) announced 1Q19 net profit of S$13.6m, down 13.7% y-o-y. This represents 23.5% of our full-year forecast and was in line with expectations, noting a seasonally weaker first quarter. The group’s gestation loss for its Chongqing hospital is within expectations, and excluding the hospital, net profit would have grown 2.1% y-o-y.

Raffles Medical Group's 1Q19 turnover increased 6.7% y-o-y to S$128.3m, helped by higher healthcare services revenue (+8.9% y-o-y) as well as marginal gains in the hospital services revenue (+3.2% y-o-y). The revenue gain in healthcare services was contributed mainly by an increase in premiums from existing and new clients, as well as Primary Care Network (PCN) scheme while hospital services saw slightly higher intensity from Raffles Hospital.
The group was also awarded a new tender by the Ministry of Social and Family Development (MSF) to provide institutional medical services.

Staff cost/turnover fell to 51.5% (1Q18: 52.7%). The decrease in operating lease expense was doption of the new SFRS(I) 16 Leases, which resulted in a corresponding increase in depreciation.

The Chongqing hospital has about 500 in-and outpatients since commencement of operations, with contribution from its emergency unit. Patient profile consists of expats and locals, including some from neighbouring provinces; however, bed occupancy remains low.
Staff count remains at about 200 in Chongqing. Management reiterated guidance of a gradual ramp-up with increased demand.
Raffles Medical Group is continuing efforts in outreach programmes to companies, embassies and business associations, including co-sponsoring the Chongqing International Marathon, which attracts about 30,000 runners and receiving media coverage.

While foreign patient load has remained flat in an increasingly competitive environment for medical tourism, Raffles Medical Group is negotiating to fill up tenant space in its new specialist centre. The group also added eight clinics to its primary care network to enhance its outreach to the heartlands.

Maintain BUY and target price of $1.30, which is DCF-based (WACC of 6.1%, terminal growth of 2.5%).
While current outlook may appear weaker due to operating losses at Chongqing hospital, Raffles Medical Group’s prospects remain healthy in the longer term if it continues to execute well in its China operations.

Potential catalysts include:
1. faster-than-expected ramp-up of new specialist extension, and
2. successful execution in the launch of its new hospitals in China.

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-04-30

SGX Stock Analyst Report BUY MAINTAIN BUY 1.300 SAME 1.300