• Singapore remains as attractive medical hub
• RMG has diversified int’l patients mix
• Long term growth story intact

No notable concern on medical tourism

While there is an inherent risk from medical tourism for Singapore’s private healthcare sector, we believe the change was not significant for Raffles Medical Group (RMG).

On the back of a diversified international patients mix, we understand that while there has been a lower volume of patients from countries like Indonesia, the group has been receiving more patients from China and Indochina. In addition, these patients continue to seek critical care, which ensures revenue intensity to an extent.

We understand that other local medical providers like Singapore Medical Group had no notable concern on medical tourism this year as well. According to a report by Visa and Oxford Economics, Singapore was among the top few countries that are ‘quickly catching up’ to the United States, the largest hub for medical tourism.

Overseas expansion a key avenue for growth

Besides relying on local patients and medical tourism, we highlight again the importance of overseas expansion to ensure long term growth potential. This is in light of the improving standards and on-going transformation for Singapore’s public healthcare sector that may increase competition for the private sector as well.

For RMG, we understand that the clinics under International SOS (MC Holdings) and its subsidiaries (MCH) have been doing well in its countries, including Cambodia and Vietnam. The group’s Shanghai hospital project is also slated to be ready in 2018. Execution remains a key factor to success in China, and we believe RMG’s management strength gives some assurance to this project.

View unchanged for now

Post-2Q16 results, we had our HOLD rating unchanged with a fair value estimate of S$1.54 on the stock, noting some near term cost pressures, which resulted in a trim to our bottomline forecasts. Nonetheless, we continue to like the long term growth here, underpinned by the group’s expansion plans. Considering recent price dips, we advocate longer term investors to consider accumulating at prices below S$1.48.  

Source: OCBC Research - 26 Aug 2016