• 1Q18 results in-line
• Headwinds well-identified and pricedin
• Maintain FV of S$1.26

1Q18 Results Within Expectations

Raffles Medical Group’s (RMG) 1Q18 scorecard was within ours and the street’s expectations. Top-line grew 4.6% YoY to S$120.2m, with 6.8% and 4.2% YoY improvement for the group’s Healthcare Services division and Hospital Services division, respectively. While the group’s Hospital Services division was boosted largely by higher domestic load, what came as a surprise was the ~2% YoY increase in foreign patient volume in 1Q18. However, one quarter does not make a year, and we prefer to refrain from drawing any conclusions from this.

The group’s Healthcare Services division was also the beneficiary of higher domestic volume, as well as its new contract involving the provision of air borders screening services. Staff costs grew by 3.9% YoY to S$63.4m, as a result of the expansion of medical centres and beds to meet demand. All-in, PATMI grew 1.7% YoY to S$15.8m, comprising 23.3% and 24.7% of ours and the street’s expectations, respectively.

China Roadmap Remains Firmly on Track

Plans for the group’s overseas hospitals appear to be on track, with Raffles Hospital Chongqing and Raffles Hospital Shanghai slated for opening in 4Q18 and 2H19, respectively. Management has maintained its guidance for start-up losses at each of its 2 Chinese hospitals. Specifically, this would involve ~S$10m and ~S$4m in EBITDA losses per hospital for the 1st and 2nd year of operations, respectively, before breaking even in the 3rd year.

At Raffles Hospital Chongqing, we believe that it will open in 4Q18 with ~200 private beds. While there has been some discussion on the possibility of rolling out an additional 100 public beds, we think that this is not likely in the near term, as more time could be needed to conclude discussions with the local authorities on its implementation.

We note that management is also in discussions with both international and local insurers in China, and the successful conclusion of these should aid in providing a healthy stream of patients to both hospitals. In our opinion, the lower YoY projected PATMI levels for FY18 and FY19, resulting largely from the expected start-up losses, should have been well-digested by the street as this has been guided by management for a few quarters now.

We maintain our assumptions and fair value estimate of S$1.26.

Source: OCBC Research - 2 May 2018