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Raffles Medical Group - The great Singapore haze

Written By Stock Fanatic on Sunday, June 23, 2013 | 23.6.13

Patient numbers at RFMD’s clinics have shot up as Singapore suffers its worst haze in living memory. This could be a catalyst for its shares, especially given the recent pull-back. Dividend upsizing is another catalyst as the group contemplates the sale of its Bideford Rd property.

We keep our estimates and target price (25x CY14 P/E, on par with regional peers) unchanged. RFMD has a very good cash-churning business. We maintain our Outperform call for its focus on high-quality curative healthcare services and organic growth angles.

What Happened
Singapore's air pollution level has risen to hazardous levels, hitting a record high since yesterday, as smoke from Indonesia’s forest fires continues to envelope the city-state. The group has seen a sudden spike in volume since Sunday through all its 72 clinics on the island.

What We Think
While it is too early to quote figures, our walk-about to two clinics and quick chats with staff suggest that volume for outpatient treatment had risen by nearly 50% wow. Based on a simple back-of-envelope calculation using RFMD’s average S$15m-18m revenue each month for its healthcare service division (clinics related) and assuming a 50% increase will result in close to S$9m in additional revenue this month. Assuming a net margin of 18%, net profit would be S$1.6m or a 2% increase to our FY14 forecast

However, the still-unknown adverse effects of the haze (the hazardous air quality levels are unprecedented for Singapore) could lead to patients needing hospital stays and other forms of medical attention that could add to RFMD’s bottom line.

What You Should Do
The price pullback of late has created a valuation gap between RFMD (at 20x CY14 P/E) and its ASEAN peers (at 24x CY14 P/E), which we see no reason not to narrow. Short-term catalysts include a spike in volume for respiratory treatments as recently seen at most of its clinics. Short- to mid- term catalysts include the resumption of operating efficiencies and dividend upsizing (possibly funded by property disposal). 

Mid- to long-term catalysts are favourable healthcare consumption themes, the Raffles Hospital expansion and a successful JV with China Merchant Bank to develop an integrated international hospital in Shekou, Shenzhen. (Read Report)

Read Related Report
Hospitality Sector - Hazy days
Friday, 21 June 2013
- OCBC Research

Source : CIMB Research


Posted on Sunday, June 23, 2013 | 23.6.13


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