Raffles Medical Group - Maybank Kim Eng 2020-02-24: Raffles Hospital Shanghai Delayed

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RAFFLES MEDICAL GROUP LTD (SGX:BSL)

Raffles Medical Group - Raffles Hospital Shanghai Delayed

FY19E in line; maintain HOLD

• Raffles Medical (SGX:BSL)’s 4Q19 net profit of SGD18.7m (-14.6% y-o-y) met our and consensus’ estimates.
• Raffles Hospital Chongqing’s (RHCQ) gestation loss was SGD9.2m at the EBITDA level, within management’s guidance of SGD8- 10m.
• We cut FY20-22E EPS by 1-6% respectively to factor in potential impact of Covid-19 on present operations, as well as the delayed opening of Raffles Hospital Shanghai (RHSH).
• Our DCF-Target Price falls to SGD1.06 (LTG: 3%, COE: 9%). Maintain HOLD.

Still largely driven by Singapore in FY19

• Raffles Medical's FY19 revenue rose 6.7%, of which healthcare services grew 9% due to increase corporate clients and greater scope of services for insurance contracts. Meanwhile, hospital services grew 5.9%, largely driven by domestic patient load. EBITDA rose 2.8% y-o-y, but would have risen 11.8% if not for gestation losses at RHCQ.

Potential impact from Covid-19

• Using SARS as a guide, and assuming Covid-19 will have two quarters of negative impact to Raffles Medical, management estimates that around 6ppt of revenue growth potential may be affected. The negative impact will likely be in the form of lower volumes for elective surgeries, and/or foreign patients.
• However, these may be partially mitigated by
  1. expanded border screening (e.g. at airports), and
  2. tele-consultations.

RHCQ has obtained Yibao; other China updates

• RHCQ has obtained approval for the use of Yibao (China’s social health insurance scheme). We are positive on this development as this widens the target market for RHCQ. Raffles Medical will also apply for Yibao approval at RHSH when it is opened. In view of the Covid-19 situation, management has opted to delay the opening of RHSH to a time when Shanghai returns to normalcy.
• As Raffles Medical has had a good track record of managing costs, and Singapore operations are fairly stable, we believe the key risk to our forecasts is if we have overestimated the growth trajectory of Raffles Medical’s China hospitals.
• See Raffles Medical Share Price; Raffles Medical Target Price; Raffles Medical Analyst Reports; Raffles Medical Dividend History; Raffles Medical Announcements; Raffles Medical Latest News.

Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-02-24

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.06 DOWN 1.070