• Double-digit core earnings growth in FY13
• 4 S cents final DPS
• Enhancing shareholders’ return

FY13 core PATMI grows 14.5%

Raffles Medical Group (RMG) reported its FY13 results which were within our expectations. Revenue rose 9.4% (one third driven by volume growth and two thirds by higher patient acuity and prices) to S$341.0m and was 1.9% below our forecast. This single-digit growth was partly due to the absence of the Ministry of Home Affairs’ medical services contract, which expired in end 2012. Excluding this, RMG’s overall revenue would have grown by 13.1%. PATMI surged 49.3% to S$84.9m, but was partly boosted by fair value gains of investment properties (S$3.9m) and a disposal gain from its Thong Sia building divestment (S$20.4m). Excluding these items, we estimate that core PATMI rose 14.5% to S$60.6m, forming 99.8% of our core earnings projection. The improved performance was attributed to growth from both RMG’s Hospital Services and Healthcare Services divisions, which registered an increase in revenue of 12.4% and 6.2%, respectively. This was in turn driven by higher patient loads and increased depth of medical specialties offered. A final dividend of 4 S cents/share was declared, bringing full-year DPS to 5 S cents (FY12: 4.5 S cents/share).

Looking forward to an enlarged healthcare network

Although RMG’s new Raffles Hospital expansion and Holland Village development project will only come on-stream in 2016, we believe it will enhance its position as a leading healthcare services provider when operations eventually commence. Management is targeting a double-digit ROI for this hospital expansion. As hiring for new staff will take place progressively over the next two years in preparation of its enlarged operations, we expect some cost pressures in the near-term.

Maintain BUY

We trim our FY14 EPS forecast marginally by 1.5% due to an enlarged share base. Given that management has implemented a concrete plan to deploy its cash in a more efficient manner which is expected to enhance shareholders’ return in the longerterm, coupled with RMG’s continued solid execution track record, we assign a slightly higher PER target peg of 30x (previously 29x) to our FY14F EPS. This raises our fair value estimate from S$3.61 to S$3.68. Maintain BUY.

Source: OCBC Research - 25 Feb 2014