• Slower 4Q16
• Raffles Hospital Extension to open by 4Q17
• Keeping our view

FY16 results within our expectations

Raffles Medical Group’s (RMG) FY16 results came in within our expectations, as revenue grew 15.4% YoY to S$473.6m, forming 98% of our FY16 estimate while PATMI was up 1.3% to S$70.2m, meeting 96% of full year estimate. Revenue was driven by a 30.8% improvement in Healthcare services and a 6.3% increase for Hospital services. Excluding International SOS (MC Holdings) and its subsidiaries (MCH), group revenue increased 7.5%, and operating profit would have grown 4.4% vs. 1.7%.

Small increase in foreign patients’ volume expected

We note that topline growth was slower in the fourth quarter, which management attributed to the holiday season and small declines in patient volume from Indonesia. To the latter point, in consideration of the macro environment and stronger SGD against currencies like IDR, MYR, coupled with strong regional competition, overall foreign patient volume growth is expected to be small.

Both segments still set to grow

Both the hospital and healthcare segments of the group are still set for growth ahead. The hospital segment should continue to see organic growth, on the back of better patient volume and case intensity. The Raffles Hospital Extension is also slated to complete by 4Q17, with about half the space for own expansion plans while the other half will be leased out. The healthcare segment would continue to be driven by existing and new medical centres, while progress is being made in improving efficiency at MCH.

Maintain BUY

Given the expansion plans, the group recorded higher costs from several fronts including higher staff costs due to the acquisition of MCH as well as staff recruitment for expanded business operations and the new medical centre in Raffles Holland V. There were also transition costs incurred for MCH during the year. Nonetheless, we believe management continues to stay focused on cost management. All considered, we adjusted our PATMI estimate slightly, giving a S$1.60 FV estimate on the stock (previous: S$1.61). Maintain BUY on the group’s steady long term growth story. A final DPS of 1.5 Scents was declared, bringing total FY16 dividends to 2.0 S-cents.

Source: OCBC Research - 21 Feb 2017