• FY17 results in-line
• Initiatives to bear fruit
• Maintain FV of S$1.26

FY17 Results Well Within Expectations

Raffles Medical Group’s (RMG) FY17 top-line increased 0.8% YoY to S$477.6m, which was on the back of its Hospital Services division and Investment Holdings clocking revenue growth of 2.3% and 21.2%, respectively. The group’s Healthcare Services division saw revenue dip 1.6%, due to the lower renewal of international healthcare plans for expatriates.

RMG’s FY17 PATMI increased 0.8% to S$70.8m, which represented 100.8% of our full-year forecast. The group declared a full-year dividend of 2.25 S-cents (previously 2 S-cents), representing a 56% total payout ratio.

Some Growth Shoots in 2018

While we continue to be less sanguine on the prospects of a marked recovery in foreign patient demand at Raffles Hospital, we believe that there are a number of bright sparks going forward. In our view, 2018 should witness stronger contribution from Raffles Holland V, given that the space has been fully leased since 31 Jul 2017, as well as top-line growth emanating from the opening of the Raffles Specialist Centre (extension of Raffles Hospital) on 22 Jan 2018.

We are also encouraged by RMG’s 5-year partnership with the Ministry of Health and the Agency for Integrated Care from Jan 2018 through three Primary Care Network clusters around Singapore to better manage chronic conditions. This, together with its recently awarded Air Borders Screening contract at Changi and Seletar Airports, should help to drive greater loads towards the group’s clinics, increase utilisation, and contribute towards fixed costs.

Guidance for China Remains

As per last quarter, we note that management continues to guide for S$8-10m and S$4-5m of EBITDA losses at each of its two Chinese projects for their first and second year of operations, respectively, before breaking even in the third year. For the Chongqing hospital, we believe ~200 beds catered to private patients will be rolled out at inception, with another ~100 public beds still being contemplated by management.

To finance its capital requirements, we believe net gearing should hit 21.3% by end of FY18. Based on our SOTP approach, we maintain our fair value estimate of S$1.26.

Source: OCBC Research - 27 Feb 2018