• Strong revenue and small PATMI growth
• 95% of space at HV mall committed
• Expansion plans on track

PATMI up 4%

Raffles Medical Group’s 3Q16 revenue grew 17.5% YoY to S$119.3m as both the Healthcare and Hospital Services divisions saw their segment revenue increase 39.7% and 6.0%, respectively. Excluding contribution from International SOS (MC Holdings) and its subsidiaries (MCH), the group’s revenue was up 7.9%. However, overall revenue growth was offset by higher staff costs as well as higher consumption of inventories and consumables. As a result, PATMI was up 4.0% to S$16.2m. 9M16 revenue of S$355.1m and PATMI of S$48.4m formed 74% and 65% of our full year estimates, respectively, while we keep in mind that 4Q is typically a stronger quarter.

Medical centres on track for breakeven

Within the healthcare services segment, we understand that the medical centre at Shaw Centre is poised to breakeven by 4Q16, while the medical centre at Holland Village could breakeven next year. For MCH, due to high staff costs and its small operating loss position, excluding MCH contribution, the group’s operating profit would have grown 4.5% instead of 0.3%.

Expansion plans offer scope for growth

With the Raffles Hospital (RH) Extension slated to complete next year, this will add about 220k sq ft of GFA to expand services such as Ambulatory services and Radiotherapy. Also recall that since 1Q16, recruitment had continued in specialisations such as Dermatology, Orthopaedics and ENT. Some of the space at RH Extension would be leased out to third parties, while we would likely see certain space reallocation at the existing hospital as well. Separately, ~95% of the space at Holland Village mall (62.7k sq ft) has been committed while the rest of the units are under negotiation.

Maintain HOLD

Our bottomline forecasts for FY16/17F are slightly reduced by ~2%, but as we roll forward our valuations to 33.5x FY17F P/E, our fair value estimate changes from S$1.54 to S$1.61. Maintain HOLD. We still believe the group offers a stable long term growth story, thus longer term investors can look to accumulate at current price levels.

Source: OCBC Research - 25 Oct 2016