Raffles Medical Group - RHB Invest 2019-10-30: All Eyes On China


Raffles Medical Group - All Eyes On China

  • Maintain NEUTRAL and Target Price of SGD1.02, 2% upside.
  • RAFFLES MEDICAL GROUP (SGX:BSL)'s 3Q19 results were within our expectations with 9M19 PATMI of SGD41.6m representing 69% of our full-year estimates. 3Q19 PATMI came in at SGD13.6m (-17% y-o-y). Excluding losses from Chongqing, 3Q19 PATMI grew 5% y-o-y. See Raffles Medical Announcements.
  • YTD, Raffles Hospital Chongqing has performed in line with management’s guidance, with 9M19 EBITDA loss of SGD6.7m. We expect overall earnings to catch up in 4Q as it is the company’s strongest quarter seasonally.

Singapore operations supported revenue growth. 3Q19 revenue grew 8% YoY to SGD130m.

  • In particular, revenue from hospital services increased by 7% y-o-y. Management cited this was largely driven by higher local patient load in Singapore, while foreign patient load remained flat.
  • Healthcare services also saw revenue grow 9.5% y-o-y on increased insurance contracts, corporate clients and clinics openings.

So far, Chongqing operations are in line.

  • Chongqing hospital registered an EBITDA loss of SGD2.6m in 3Q19. While this has widened from -SGD2.3m in 2Q19, 9M19 EBITDA loss amounted to SGD6.7m. We expect full-year EBITDA loss to come in at c.SGD9.5m, in line with management’s guidance of EBITDA loss of SGD8-10m for the first year of operations.
  • Management also cited that the group is working with the local government to allow patients to pay part of their hospitalisation fees with China’s social health insurance (医保). We believe traction for the Chongqing hospital will improve further once this has been rolled out.

Shanghai hospital on track.

  • The building structure of the Shanghai hospital was completed in May. Management expects the interior fit-out to complete by the end of year, and commence operations sometime in Mar-Apr 2020.
  • Management also expects the first 12 months of operations for the Shanghai hospital to generate an EBITDA loss of SGD8-10m. As such, we expect Shanghai operations to record a loss of c.SGD6m for FY20F.

Still NEUTRAL for now.

  • While Singapore resident-patient load has seen healthy growth this quarter, we expect this to taper down in 2020 on the back of a slowing domestic economy and declining medical tourism. This however, could be mitigated by higher rental income as the group rents out part of the space in Raffles Hospital extension to food & beverage (F&B) retail players as well as improved patient load in Chongqing, and the opening of the Shanghai hospital.
  • See Raffles Medical Share Price; Raffles Medical Target Price; Raffles Medical Dividend History.
  • Key risk is the ability to generate adequate patient load in China to breakeven by the third year.

Juliana Cai CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-10-30
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.020 SAME 1.020