Raffles Medical Group - OCBC Investment 2019-07-29: Subdued Results

RAFFLES MEDICAL GROUP LTD (SGX:BSL)

Raffles Medical Group - Subdued Results

RAFFLES MEDICAL GROUP LTD (SGX:BSL)'s 2Q19 net profits of SGD14.2mn fell 16% year on year, bringing 1H19 net profits to SGD27.92mn (-14% yoy) and accounting for ~46% of full year consensus forecasts.
2Q19 revenues of SGD127mn fell -1% qoq, while 2Q19 net income margin of 11.2% improved quarter on quarter (1Q19 ~10.6%) but declined from 14% a year ago.
Net gearing remained healthy at ~4%, with an interim dividend of 0.5Scts declared (flat yoy).

Neutral stance with limited near term upside, fair value is reduced to SGD1.06 implying 35x forward PER.
While we see growth potential from its expansion plans in China over the medium term, near term catalysts appear limited given gestation time required for ramping up its new facilities in China (Chongqing hospital has now opened up 150 beds while the Shanghai 400-bed facility looks on track and is expected to see an early FY20 opening).
Raffles Medical Group continues to ramp up its network of medical centres (2 new clinics at Nanjing and in the process of signing up new corporate customers) which should help in patient referrals to its Chinese hospitals over time.

Remains profitable despite gestation losses for Raffles Hospital Chongqing, which is currently in its first year of operations and is expected to see EBITDA break-even by its third year.
Following the slightly weaker 1Q, management had updated it continued to work towards sales of SGD30-40mn in 2019 from the Chongqing facility, and expected the main Singapore hospital to start growing patient volumes after another couple of quarters as time was needed for impact from refurbished wards to feed through.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-07-29

SGX Stock Analyst Report HOLD DOWNGRADE BUY 1.06 DOWN 1.250