RAFFLES MEDICAL GROUP LTD (SGX:BSL)
Raffles Medical Group - All Eyes On China Growth
3Q19 in line; maintain HOLD
- RAFFLES MEDICAL GROUP (SGX:BSL)'s 3Q19 PATMI was in line, falling 17% y-o-y due to gestation costs at Raffles Hospital Chongqing (RHCQ). See Raffles Medical Announcements.
- As Raffles Hospital Chongqing’s start-up losses were as expected, our FY19-21E EPS are largely unchanged. However, we now assume a slower FY18-29E PATMI CAGR of 7.4% (prev: 9.3%), factoring in risks that Raffles Medical Group may take longer than expected to scale patient load in China.
- DCF Target Price raised to SGD1.07 (WACC: 9%, LTG: 3%), as we roll forward to FY20E. Stronger than expected revenue growth in China is a catalyst.
- (See Raffles Medical Share Price; Raffles Medical Target Price; Raffles Medical Dividend History)
Robust domestic performance
- Revenue grew 7.8% y-o-y, as healthcare services (+9.5%) benefitted from increased insurance contracts and corporate clients. Hospital services, which grew 7%, was driven largely by domestic patient load.
- According to management, foreign patient load was flattish y-o-y. Although pricing was stable, Raffles Medical Group noted a slight increase in revenue intensity. EBITDA rose 1.4% y-o-y, but would have been 12.1% excluding Raffles Hospital Chongqing’s start-up losses.
Raffles Hospital Chongqing start-up costs well contained
- Raffles Hospital Chongqing’s EBITDA loss in 9M19 is estimated to be SGD6.7m, within the run-rate of SGD8-10m p.a. for the first year. For both China hospitals, management remains confident of breaking even at the EBITDA level by year three of operations (Raffles Hospital Chongqing: 2021, Raffles Hospital Shanghai: 2022-23).
- Raffles Medical Group also sees little problem attracting doctors in China given its strong reputation within the medical community. Construction for Raffles Hospital Shanghai is expected to complete by year end, and commence operations in Mar/Apr-20.
More conservative on China growth assumptions
- Raffles Medical Group's 9M19 revenue fell short of our expectation. While contribution from Raffles Hospital Chongqing was not disclosed, Raffles Medical Group says the quantum remains miniscule relative to group.
- Further, Raffles Medical Group may need more time than expected to build brand familiarity and trust among potential patients to scale revenues over the longer term. To account for this, our revenue growth expectations are now more conservative (FY18-29E CAGR: 6.3%, prev: 7.7%). Upon seeing evidence of stronger than expected traction in China, we may revise growth expectations higher.
Lai Gene Lih CFA
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-10-30
SGX Stock
Analyst Report
1.07
UP
1.050
