• More clinics under its portfolio
• Diversifying presence with new countries
• Sound plans for the long run

First medical centre in Japan

Raffles Medical Group has made its first foray into operating clinical facilities in Japan by opening a 5,400 square feet medical centre at Herbis Osaka, Kita-ku in Osaka City. Herbis Osaka, which is in the prime CBD area, has retail, office and hotel components, with the Ritz Carlton Osaka located in the same building.

"RafflesMedical Osaka" will be operated by the group's subsidiary Raffles Japanese Clinic, along with its JV Japanese partner Socion Healthcare Management Ltd. Targeting at both local patients and tourists, there would be Japanese and foreign physicians, as well as professionals who can provide multi-lingual support for foreign patients.

Acquired an operator of 10 clinics

The group had also recently acquired International SOS (MC Holdings) Pte Ltd, which operates 10 clinics in China, Vietnam and Cambodia. This was done via the group’s subsidiary Raffles SurgiCentre Pte Ltd acquiring 375k ordinary shares of MC Holdings at a consideration of US$24.5m (~S$34.3m), and would be fully satisfied in cash from internal resources. As at 30 Jun 2015, the group was in a net cash position of S$112.5m.

Building for the future

While these clinics may not contribute substantially to earnings, the clinics will facilitate the group in gaining a foothold in new growth areas. We previously noted the risk of waning medical tourism to Singapore, and hospital services were being driven more by local demand during 2Q15. Thus the move to diversify its presence overseas bodes well in diversifying the group’s earnings profile for the future.

Pipeline of projects to sustain growth

We can look forward to the completion of Raffles Holland V, slated for completion by 1Q16. Further ahead, Raffles Hospital extension is expected to be ready by 2Q17 and to establish a client base, 1-2 more medical centres in Shanghai could be introduced before the completion of its Shanghai Hospital in 2018.

We are keeping our HOLD rating, with fair value estimate of S$4.59. Noting that the share price has corrected from a 52-week high of S$4.99, longer-term investors can look out for buying opportunities at S$4.36 or lower.

Source: OCBC Research - 10 Sep 2015