Raffles Medical Group - Maybank Kim Eng 2019-07-29: Tracking Expectations

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

Raffles Medical Group - Tracking Expectations


No surprises in 2Q19; maintain HOLD

  • RAFFLES MEDICAL GROUP LTD (SGX:BSL)’s 2Q19 PATMI was in line with our and street expectations, falling 15.6% y-o-y due to gestation losses at Raffles Hospital Chongqing (RHCQ). Excluding this, PATMI would have been flattish. Raffles Hospital Shanghai (RHSH) is on track to open in early 2020E.
  • Our forecasts are unchanged. Maintain HOLD and DCF-Target Price of SGD1.05 (WACC: 9%, LTG: 3%).
  • Stronger than expected growth of China hospitals could be a catalyst, while longer than expected gestation period is a risk, in our view.



Domestic patients key driver of Singapore ops

  • Raffles Medical Group's 2Q19 revenue grew 5.6% y-o-y, as the healthcare services division, which grew 7.4% y-o-y, benefitted from increased insurance contracts and corporate clients. Hospital services expanded 3.4% y-o-y on a combination of patient growth and rising revenue intensity.
  • Management attributed volume growth to domestic patients, while foreign patient volume was “maintained”.


RHCQ – start-up loss well contained

  • RHCQ’s 1H19 EBITDA loss was around SGD4m (2Q19: SGD2.3m), in line with Raffles Medical Group’s full year guidance of SGD8-10m. Raffles Medical Group is beefing up marketing efforts to attract domestic patients.
  • Raffles Medical Group noted that operating costs at RHCQ were significantly lower than expected. As such, Raffles Medical Group sees more scope to adapt pricing to optimise volume over the longer run. Operational bed-count is unchanged at 150, and outpatients make the bulk of total load.


Risks

  • We believe Raffles Medical Group’s China hospitals are beneficiaries of a demographically aging but increasingly affluent population. A risk to our view is if Raffles Medical Group is unable to sufficiently scale patient volumes as this could
    1. lengthen the breakeven period, of which management has guided to be three years per hospital, at the EBITDA level; and/or
    2. result in valuation derating as consensus lowers growth expectations.
  • According to an interview with SCMP, Chairman Dr. Loo believes China contributions could be similar or larger than Raffles Medical Group’s Singapore revenue in 10 years. See interview.





Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-07-29
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.050 SAME 1.050



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