• Pipeline of capacity expansion plans
• Focused on improving operational efficiency too
• Opportunity to accumulate shares

Growing geographical presence

Raffles Medical Group’s new medical centre at Shaw Centre in Singapore was opened in 2H15, and looking ahead, its Holland Village project should start contributing to top-line from 2Q16 onwards. In 2017, we can expect the hospital extension to be ready, which will give a total GFA of ~50k sqm when combined with the existing building.

Despite concerns over the risk of wavering medical tourism in Singapore, we believe the group still serves a premium segment of patients and offers specialized treatments such as the new bone marrow transplant programme that enable the group to remain a strong contender against its regional competitors.

Nonetheless, diversifying its presence remains pertinent, and the group has been doing so with the new medical centre in Japan, as well as the acquisition of International SOS (MC Holdings) Pte Ltd, which operates 10 clinics in China, Vietnam and Cambodia. The group will also have a Shanghai hospital project that is slated for operations in 2018.

Productivity improvements would help offset cost pressures

We are cognizant of the increase in expenses from all fronts, given the expansion plans of the group. Nurses and staffs have to be trained before the new centres are opened, thus expenses have to be incurred before any meaningful revenue contribution.

4Q should see some revenue contribution from the Shaw Centre facility; and it is usually their strongest quarter. More importantly, management is focused on striving to achieve higher operational efficiency.

Not expensive relative to peers

We previously noted that longer-term investors could look to accumulate the group’s shares below S$4.36, thus we think value has reemerged at current valuation. The stock is also relatively cheaper than its peers. We had upgraded the stock from hold to BUY in a report on 23 Nov-15, and we maintain our call with a fair value estimate of S$4.59.

Source: OCBC Research - 16 Dec 2015