• On-going projects are on-track
• Shanghai hospital project awaiting approvals
• Proposed share split

FY15 results met expectations

Raffles Medical Group’s (RMG) FY15 results met our expectations. Revenue grew 9.6% YoY to S$410.5m, forming 99% of our FY15 estimate, which was driven by a 14.6% improvement in Healthcare services and a 7% increase for Hospital services.

Higher staff costs (FY15: +11.8%), depreciation costs (+32.3%) and operating lease expenses (+29%) were incurred, due to continued expansion of the RafflesMedical clinic network, as well as inclusion of costs from the acquisition of International SOS (MC Holdings) (MCH) since 17 Oct 15.

As a result, PATMI rose 2.4% to S$69.3m. Excluding fair value gains on investment properties, PATMI was up 4.9% to S$67.8m, meeting 102% of our full year estimate.

MCH offers areas for improvement and growth

An estimated ~S$10m of revenue under Healthcare services came from MCH’s 2.5 month contribution, while staff costs currently form about 60% of its revenue. Excluding MCH, FY15 revenue would have been up ~7% YoY. Management sees staff costs as an area to work on to improve margins over time, especially after completing initial integration work.

MCH itself is also integral to the group’s larger growth strategy of strengthening its regional presence. For instance, MCH has clinics in China, and new medical centres will also be set up to feed patients into its Shanghai hospital project.

Higher DPS declared

All on-going projects are currently on track. The Holland Village Mall project may start operations by May 2016 and the Raffles Hospital extension (GFA: 221k sq. ft.) is slated to be ready in 2017, whereby we see potential growth upside for Healthcare services segment. We raise our FY16F PATMI by 4% and introduce our FY17 estimates.

Pegged to 33.5x FY16F P/E, our fair value estimate changes from S$4.59 to S$4.72 while we keep a conservative value of S$0.43 ascribed to the Shanghai Hospital project. Maintain BUY. A higher final DPS of 4.5 S-cents was declared, bringing total DPS to 6.0 S-cents, vs. 5.5 S-cents last year. A one-to-three share split has also been proposed, subject to shareholders’ approval.

Source: OCBC Research - 23 Feb 2016