Raffles Medical Group - UOB Kay Hian 2019-10-30: 3Q19 In Line; Gradual Additions For Chongqing, But Local Operations Underscore Resilience


Raffles Medical Group - 3Q19 In Line; Gradual Additions For Chongqing, But Local Operations Underscore Resilience

  • Raffles Medical Group reported 3Q19 net profit of S$13.6m (-16.9% y-o-y), in line with our expectations.
  • Chongqing hospital gestation losses are still in line with guidance and awaiting further ramp-up, despite slight teething issues such as implementation of local medical insurance. Excluding Chongqing, the group’s operations remain resilient with the local hospital seeing better resident patient loads, underscoring its defensive nature.
  • Maintain BUY with an unchanged DCF-based target price of S$1.27.


RMG's 3Q19 results in line with our expectations.

Raffles Chongqing still operating within expectations.

  • Raffles Medical Group’s gestation loss for its Chongqing hospital is within expectations, with EBITDA loss of S$2.6m in 3Q19. However, top-line contribution was still marginal. The hospital is now operating around the clock and staffed by a team of multi-disciplinary international and local doctors.
  • Net profit after tax would have grown by 4.8%, excluding the losses for Chongqing hospital.

Revenue growth remains strong.

  • Raffles Medical Group's 3Q19 turnover increased 7.8% y-o-y to S$130.5m. Revenue for Healthcare Services division recorded an increase of 9.5% y-o-y while the revenue of Hospital Services division increased by 7.0% y-o-y. Management noted that the resident local patient load remains strong.
  • The group continues to show effective cost control, with staff costs/turnover ratio rising only 0.5ppt in 3Q19 and was comparable on verall, operating margin for 3Q19 was 13.2%, down slightly on a q-o-q basis from 13.9% in 2Q19.


Gradual additions for Chongqing hospital; awaiting ramp-up.

  • While patient load remains mostly outpatient in nature, Raffles Chongqing is gradually adding on its medical disciplinaries to the hospital, including gynaecology, dental, ENT (ear, nose, throat). Some positives include seeing a good proportion of repeat patients, a testament to the quality of services provided, while also continuing promotional activities to draw in new patients.
  • Management noted that there were some disappointments, including the slower pace of the regulatory process in China. Its Yibao (local medical insurance) is still in the process of implementation, along with the approximately 100 public beds designated.

Excluding Chongqing hospital, operations remained very resilient.

  • While the newly established hospital is a slight drag, other areas of operations have remained resilient. For one, MCH, its subsidiary of overseas clinics has seen an improvement noted from the reduction in minority interest losses.
  • In addition, its foreign patient load at Raffles Hospital remains flat, comparatively better than the decline seen in the industry.

Shanghai hospital in 1H20; possibly an easier ramp-up than Chongqing.

  • With the building structure completed, the group is progressing with the interior fit-out and purchase of major equipment and is looking at opening the hospital between Mar/Apr 20. Recruitment of the hospital opening team has also begun and initial operations may involve some Raffles Medical Group doctors from Chongqing.
  • In addition, Raffles Medical Group has an established clinic in Shanghai, which can aid in referral of patients. A larger expat market in Shanghai can also avoid some of the issues faced from local medical insurance.


  • None.


Maintain BUY with an unchanged target price of S$1.27.

  • This target price is DCF-based (WACC of 6.1% and terminal growth of 2.5%). The group’s resilient operations (excluding Chongqing Hospital) is a strength and we opine that its defensive qualities are underappreciated. See Raffles Medical Share Price; Raffles Medical Dividend History.
  • Raffles Medical Group’s longer-term prospects remain healthy 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. better-than-expected ramp-up of new hospitals in China.

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-10-30
SGX Stock Analyst Report BUY MAINTAIN BUY 1.270 SAME 1.270