Raffles Medical Group 1H19 - UOB Kay Hian 2019-07-30: In Line; Costs Well Managed In Chongqing But Awaiting Further Ramp-Up


Raffles Medical Group 1H19 - In Line; Costs Well Managed In Chongqing But Awaiting Further Ramp-Up

  • Raffles Medical Group reported 2Q19 net profit of S$14.3m (-15.6% y-o-y), with 1H19 net profit of S$27.9m (-14.7% y-o-y) in line with our expectations. The Chongqing hospital’s contribution is still marginal to date, although operating costs look to be lower than expected.
  • On the local front, the new Raffles Specialist extension continues to bring in tenants, albeit at a slower pace than expected.
  • Maintain BUY with a revised DCF-based target price of S$1.27.


1H19 results in line with our expectations, Raffles Chongqing losses still well contained.

  • RAFFLES MEDICAL GROUP LTD (SGX:BSL)’s 1H19 net profit accounted for 48.0%/45.8% of our/consensus full-year forecast. 2Q19 net profit of S$14.3m was down 15.6% y-o-y, largely impacted by Raffles Chongqing gestation costs. The group’s gestation loss for its Chongqing hospital is within expectations, with EBITDA loss of S$2.3m in 2Q19.
  • Net profit after tax would have grown by 0.4%, excluding the losses for Raffles Chongqing.
  • An interim dividend of 0.5 S cent/share was declared for 1H19, unchanged vs 1H18.

Cost management well maintained, but still marginal contribution from Chongqing hospital.

  • Raffles Medical Group's 2Q19 revenue was up (+5.6% y-o-y). Revenue for Healthcare services division increased by 7.4%, while the revenue of Hospital Services division increased by 3.4% y-o-y. The increase in revenue from Healthcare Services division was a result of winning more insurance contracts and corporate clients, while the revenue increment from hospital services came mainly from its Singapore hospital, with marginal contribution from Raffles Chongqing.
  • However, the group showed effective cost control, with staff costs/turnover ratio rising only 0.6ppt in 2Q19 and was down 0.3ppt in 1H19.
  • Overall, operating margins for 2Q19 was up slightly on a q-o-q basis, to 13.9% (from 13.3% in 1Q19).


Chongqing hospital still in its marketing phase.

  • Raffles Chongqing is continuing its outreach efforts to corporate and private patients whilst having some promotional pricing in the interim. The group aims to price medical services in Raffles Chongqing similar to private foreign hospitals while higher than local hospitals.
  • Management commented that operating costs for the first six months were significantly lower than anticipated, which is a positive, although we are cautious on the low revenue contribution by the hospital to date.

Steady local operations.

  • Raffles Medical Group has largely maintained its foreign patient load in spite of competition in the region. According to management, the number of beds is up to 250 in Raffles Hospital Singapore.
  • The new Raffles Specialist extension is continuing to bring in tenants for its commercial space and the retail outlets, albeit at a slower pace than we had expected.


  • We trim 2019-21 earnings by up to 2.0%, factoring in slower-than-expected tenant leases for Raffles Specialist extension.


Maintain BUY with a revised target price of S$1.27.

  • This is DCF-based (WACC of 6.1% and terminal growth of 2.5%).
  • While near-term outlook may appear weaker due to operating losses expected at its China hospitals, Raffles Medical Group’s prospects remain healthy in the longer term if it executes well overseas to bring in higher levels of sustainable patient load.


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

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-07-30
SGX Stock Analyst Report BUY MAINTAIN BUY 1.27 DOWN 1.300