• 2Q17 results mostly unchanged
• Supportive local patient load
• Expansion plans in progress

2Q17 Results Within Expectations

Raffles Medical Group’s 2Q17 results were generally within our expectations. Revenue was up slightly by 1.0% YoY to S$120.1m as the group saw better patient load, but foreign patient demand was softer than expected. Revenue from the Hospital Services division was up 0.3% while revenue from the Healthcare Services division was down 1.1%.

Higher costs relating to staff and consumables were recorded but were partially offset by lower A&P expenses. As a result, PATMI was up 0.5% to S$16.8m. 1H17 revenue of S$235m and PATMI of S$32.3m were largely unchanged YoY; both contributed 46% and 44% of our full year estimates respectively.

Preparing for the Upcoming Raffles Hospital Extension

Given the upcoming Raffles Hospital extension in 4Q17, the group has been recruiting more specialist consultants, management and clinical staff. The development will see the hospital expanding the scope of clinical services as well as capacity for outpatient specialist centres and inpatient facilities. At least 50 beds will also be added progressively. Although the near-term outlook for demand seems to be relatively flat, management believes in the growth potential that justifies the extension.

Cognizant of Costs, Trimmed Our Estimates

Given the current economic environment and modest sentiment, foreign patient demand may likely continue to be soft while local patient load is slightly better. Beyond Singapore, the group’s hospital projects in Chongqing and Shanghai are progressing as planned, and are targeted to be operational by 2H18 and 2H19 respectively.

We are also cognizant of the start-up costs from larger-scale expansion plans for the next two to three years, nonetheless we believe management has a disciplined approach towards cost control. Based on preliminary guidance for the Chongqing hospital and a stable outlook for local operations, we trim our FY17/FY18F PATMI by 4%/9%.

Our fair value dips from S$1.60 to S$1.47. At current price levels, we have a BUY rating. Separately, an interim dividend of 0.5 Scents was also declared, unchanged from last year.

Source: OCBC Research - 1 Aug 2017