1Q14 results slightly below expectations on slower-than-expected revenue growth. But margins remained healthy.

Tight capacity at existing Raffles Hospital may curtail growth for now but significant medium-term growth beckons with completion of extension projects in 2016.

Maintain BUY. Trim DCF-derived TP to SGD3.95, on lower earnings forecasts.

1Q14 results slightly below expectations

Raffles Medical reported 1Q14 revenue of SGD87.6m, up 8% YoY but down 1% QoQ as the first quarter is seasonally the weakest. Healthcare services grew 14.3% YoY and the hospital segment, 4.8% YoY. According to management, the hospital segment posted even growth in terms of volume and pricing, but it was still slightly below our expectations. Accordingly, we lower our revenue growth assumptions, as tight capacity at existing Raffles Hospital may curtail growth.

Margins stayed healthy as management continued to keep a tight lid on operating costs. Higher contracted services costs were largely due to a change in revenue mix, with higher growth coming from the corporate insurance business (healthcare services). This resulted in a net profit of SGD12.6m for 1Q14 (+8% YoY).

Maintain BUY

Management is still in talks with its China partners for two greenfield hospital projects. While the MOUs have a stop-date of Jun 2014, we believe this may be pushed back as the relevant parties iron out further details. We lower our FY14E-16E earnings by 3-5%. Earnings growth is likely to be below historical mid-teens over the next two years, but the company would have a significant growth trajectory once it’s Holland V and hospital extension projects are completed by 2016. We trim our DCF-based TP to SGD3.95 (previously SGD4.11). Maintain BUY.

Source: Maybank Kim Eng Research - 29 Apr 2014