• 2Q14 PATMI grew 8.5% YoY
• Sluggish Indonesian patient numbers
• Share price performed well since our last upgrade

2Q14 results within our expectations

Raffles Medical Group (RMG) reported a 8.5% YoY increase in its 2Q14 PATMI to S$15.6m on the back of a 6.6% growth in revenue to S$92.6m. The latter was driven by a 14.7% jump in revenue for its Healthcare division, while its Hospital Services division grew at a slower pace of 4.9%. For 1H14, revenue was 7.3% higher at S$180.2m and PATMI rose 8.2% to S$30.2m. This formed 47.3% and 44.4% of our FY14 forecasts, respectively. We view this set of results as in-line with our expectations as 2H is traditionally RMG’s stronger half. RMG also declared an interim dividend of 1.5 S cents/share, slightly higher than the 1 S cent/share dividend declared in 2Q13.

Softer foreign patient figures

RMG’s Hospital Services segment, which has typically been its main growth driver, registered only a ~5% YoY growth in revenue for the second consecutive quarter (1Q14: +4.8%). Management highlighted that its foreign patients’ growth was flattish in 2Q14, as there was a fall in patients from Indonesia. We believe this can be attributed to the strong SGD and uncertainties caused by the Indonesian presidential elections. Meanwhile, management expects to break ground for its Raffles Hospital extension in 4Q14. Construction will take approximately two years, and hence a full year of contribution would only happen in FY17.

Downgrade to HOLD with unchanged FV estimate

We retain our financial forecasts but raise our FY14 and FY15 DPS estimates marginally from 5 S cents to 5.5 S cents. RMG’s share price has performed well since we last upgraded it to a ‘Buy’ on 18 Jun 2013, appreciating 34.3%, versus the STI’s 5.4% increase during the same period. While we like RMG for its strong track record and upcoming network expansion plans, we believe these positives have already been priced in. Hence, we downgrade RMG to HOLD, with an unchanged fair value estimate of S$3.90 (pegged to 30x blended FY14/15F EPS). We would turn buyers again below the S$3.60 level.

Source: OCBC Research - 30 Jul 2014