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Simons Trading Research

Author: simonsg   |   Latest post: Fri, 16 Aug 2019, 6:42 PM

 

Raffles Medical Group - Cost Management Offset Soft Revenue in 1H19

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  • Maintain NEUTRAL with unchanged Target Price of SGD1.02, 0% downside plus 2.4% dividend yield.
  • RAFFLES MEDICAL GROUP (SGX:BSL)'s 2Q19 results met our estimates, with 1H19 PATMI of SGD27.9m representing 47% of our full-year estimates. 2H19 should be seasonally stronger.
  • The 6% y-o-y growth in 1H19 revenue was a tad slower than our expectation, but this was offset by better cost management at its Chongqing hospital.
  • Raffles Medical Group's 1H19 interim dividend was maintained at 0.5 cents/share.

Revenue Growth Seems to be on the Softer Side

  • Raffles Medical Group's 2Q19 revenue grew 6% y-o-y to SGD127m, driven by 7.4% growth in Healthcare services and 3.4% growth in Hospital services. This brought 1H19 revenue to SGD255m, up SGD15m y-o-y.
  • Earlier, during the 1Q19 results briefing, management guided for the Chongqing hospital to reach SGD30-40m in revenue for the first year. As such, we think the 1H19 revenue growth of SGD15m y-o-y, inclusive of both Singapore and Chongqing operations, seems to be on the low side.
  • In Singapore, Raffles Hospital saw patient load grew by 1-2%, largely driven by local patients while the foreign patient load remains flat. Healthcare services continued to grow, as the group continued to sign on more corporate clients and expand its medical centres’ footprint in China.

Raffles Medical Group's 2Q19 PATMI of SGD14.2m was down 16% Y-o-y

  • This was due to gestation cost at the new Raffles Hospital in Chongqing (RHCQ), which commenced operations this year. YTD, RHCQ recorded an EBITDA loss of SGD4.1m, in line with management’s guidance of SGD8-10m EBITDA loss in the first year of operations.
  • Despite slower revenue growth at RHCQ, EBITDA was still in line due to better cost management, in particular staff expenses. The group would continue to spend on marketing and promotions to ramp up patient load at RHCQ in 2H19.

Shanghai hospital is still on track

  • Shanghai hospital is still on track to complete by the end of the year, and commence operations next year.
  • In view of the gestation costs for both RHCQ and the new Shanghai Raffles Hospital that are expected to come up next year, we maintain our NEUTRAL call on the stock with unchanged DCF-derived Target Price of SGD1.02.
  • A faster-than-expected ramp up at its China hospitals would be a key catalyst to Raffles Medical Group's share price, in our view.

Source: RHB Invest Research - 29 Jul 2019

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