• 3Q14 PATMI +11.3% YoY
• Overall foreign patients’ volume grew
• Higher nurses’ pay in healthcare sector

3Q14 results in-line with our expectations

Raffles Medical Group (RMG) reported a double-digit YoY growth in both its topline and bottomline for its 3Q14 results. Revenue was up 11.1% to S$94.5m due to a higher patient load, addition of specialist consultants and increased provision of healthcare insurance services. This is further segregated into a 16.4% and 7.3% jump in revenue from its Healthcare Services and Hospital Services divisions, respectively. PATMI rose 11.3% to S$15.4m, implying a net margin of 16.3% (flat YoY). For 9M14, revenue increased 8.6% to S$274.6m, and constituted 72.1% of our FY14 forecast. PATMI rose 9.2% to S$45.6m, or 67.1% of our full-year projection. This was within our expectations, as 4Q is traditionally RMG’s strongest quarter (9M13 PATMI made up 68.9% of FY13’s core PATMI).

Single-digit foreign patients’ growth, drag from Indonesia

RMG’s Hospital Services segment registered its third consecutive quarter of single-digit YoY revenue growth in 3Q14. Although foreign patient figures saw an improvement with a single-digit growth, as compared to a flat performance in 2Q14, management highlighted that there was a decline in its Indonesian patients in 3Q14. This was largely attributed to the weak IDR versus the SGD. Overall growth in foreign patient loads was still possible due to RMG’s efforts to diversify its foreign patient base, with good traction coming from Indo-China and Middle-East.

Maintain HOLD

In Aug this year, Singapore’s Minister for Health Mr. Gan Kim Yong highlighted that nurses in public healthcare and MOHsubvented Intermediate and Long Term Care institutions will receive a 5-20% increase in their monthly base salaries in two stages in 2014 and 2015. Moreover, a new annual Nurse Special Payment of half a month’s pay will be introduced with effect from Dec this year. RMG updated us that it will also raise the wages of its nurses to stay competitive, but intends to pass on some of these costs to its patients. We trim our FY14 and FY15 PATMI forecasts by 2.0% and 2.4%, respectively, on more moderated revenue growth assumptions. But as we roll forward our valuations to 30x FY15 EPS, our fair value inches up from S$3.90 to S$3.95. Maintain HOLD.

Source: OCBC Research - 28 Oct 2014