Raffles Medical Group - Beyond one hospital?

FY12 core EPS is in line at 97% of our forecast, confirming renewed operating efficiency. More importantly, the potential for an overseas venture with China Merchant Bank adds excitement, underscoring the group’s longer-term plans for Hong Kong and Shenzhen.

4Q12 core PATMI meets our expectations. Still, we lower our FY13-14 EPS by 2% for future higher taxes and introduce FY15 EPS. Accordingly, our target dips ever so slightly, still based on 22x CY14 P/E (its mid-cycle valuations). Maintain Outperform with the resumption of operating efficiencies providing potential catalysts.

Pricing power returned
A higher patient load (+9% yoy) and higher patient acuity are evident in this set of results. 4Q12 marked the group’s turning point, contributing 36% to FY12 profit. Revenue of S$312m (+14.2% yoy) came from Hospitals (+16% yoy) and Healthcare Services (+11% yoy). More importantly, price increases (+7% yoy) kicked in, marking the return of RFMD’s pricing power which was missing in 2Q-3Q12. FY12 dividend has been raised to 4.5cts/share (FY11: 4.0cts).

All well in Orchard?
The group may have to wait another month to find out the outcome of its application for a new proposed specialist centre in Orchard Road. Management seems upbeat on approval.

Big overseas intention
RFMD has signed a Letter of Intent with China Merchant Bank, to jointly develop an integrated international hospital with more than 200 beds in Shekou, Shenzhen, China. The proposed hospital is expected to provide high-end medical services to foreigners and affluent local residents in the Pearl River Delta. 

Investment value for RFMD’s share of the JV has been estimated at S$150m. If RFMD pursues this opportunity and Chinese approval is granted, the hospital could be ready in three years’ time. (Read Report)

Source : CIMB Research