Raffles Medical Group 2Q19 - CGS-CIMB Research 2019-07-29: Muted Topline Growth


Raffles Medical Group - 2Q19: Muted Topline Growth

  • Raffles Medical Group's 2Q19 in line; revenue growth was slower than expected (+5.6% y-o-y, -1.0% q-o-q) as Chongqing hospital takes time to ramp up. Maintain HOLD.
  • Excluding the start-up loss, 2Q19 EBITDA would be +9.3% y-o-y and net profit +0.4% y-o-y, thanks to strong cost management and resilient SG operations.
  • YTD EBITDA loss from Chongqing was S$4.1m, well within management’s initial guidance of S$8m-10m for the first year of operations

1H19 PATMI within with our/consensus expectations

  • RAFFLES MEDICAL GROUP (SGX:BSL) ’s 2Q19 PATMI of S$14.2m was 15.6% y-o-y lower due to gestation costs from its Chongqing Hospital (opened in Jan 19). This was in line with our/consensus full-year forecasts at 25%/23% (1H19: 49%/46%).
  • Excluding the impact of Chongqing hospital, 2Q19 EBITDA would have increased by 9.3% y-o-y and net profit by 0.4%, reflecting the resilience of its domestic operations and better cost efficiency (staff costs, purchased and contracted services).
  • Balance sheet remains healthy with 3.6% net gearing as of end-2Q19; the group also declared an interim DPS of 0.5Scts (unchanged y-o-y).

China: still in early days

  • Chongqing hospital incurred an EBITDA loss of S$2.3m and estimated net loss of S$2.7m in 2Q19, which saw a step up from 1Q19 (EBITDA: -S$1.8m, net: -S$2.2m) as there were higher advertising and business promotion expenses. This, however, remains within the management’s full-year guidance of S$8m-10m EBITDA loss.
  • It has now opened 150 beds with over 230 staff and mainly outpatient visits, although patient load and revenue contribution are still not meaningful.
  • Management said that its network of medical centres in China is ramping up well, with 2 new clinics in Nanjing and more corporate customers signed up (including MNCs, auto companies, foreign embassies), which should benefit its China hospitals in terms of patient referrals.

Singapore: slow and steady

  • Topline grew 5.6% y-o-y in 2Q19, across both healthcare and hospital services segments. A combination of higher revenue intensity and over 1% growth in patient volume contributed to the 3.4% y-o-y growth in hospital services revenue. Healthcare services revenue rose 7.4% y-o-y on the back of more insurance contracts and corporate clients.
  • We understand that the capacity has expanded from 200 to 250 operational beds with the Raffles Extension; c.10% of the space has been leased out.

Maintain HOLD

  • We make no changes to our FY19-21F EPS forecasts, SOP-based Target Price of S$1.10 and HOLD rating as we think the gestation costs of new hospitals have been largely priced in.
  • Downside risks: poor overseas execution and unfavourable regulatory changes; faster ramp-up of Chongqing hospital will be the key near-term catalyst for the stock.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-29
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.100 SAME 1.100