• No big surprises in 3Q18
• Final touches to RHC
• Maintain FV of S$1.26

In-line Scorecard

Raffles Medical Group 3Q18 results were in-line with our expectations. Top-line grew 1.2% YoY to S$121.0m, due largely to a 8.0% YoY revenue increase in the group’s Healthcare Services division. This was due to a mix of new corporate clients as well as the new contract to provide Air Borders screening services.

We understand that contribution from Raffles Shield was minimal in 3Q18, but should step up in 4Q18 onwards. The healthy performance in the Healthcare Services division was, however, partially offset by the 3.8% YoY drop in revenue from the group’s Hospital Services division, which was in part due to the refurbishment of current inpatient facilities.

We note that Raffles Hospital opened a new inpatient ward in 3Q18, catering to patient needs under the Emergency Care Collaboration with the Ministry of Health. Management has guided that the bulk of the inpatient renovation has already been completed, though we expect continued softness from weaker foreign patient load.

PATMI for the quarter grew 0.1% YoY to S$16.4m, forming 24.2% of our full-year forecast. We deem this set of results to be broadly within expectations.

Getting Ready to Roll Out in Chongqing

Management has guided that that they have hired ~100 staff, which include specialists covering the main practices offered by Raffles Hospital Chongqing, which will open in 4Q18.

As we understand, the group could add another ~100 staff to its headcount in the near future (with a greater portion of clinical and administrative/support staff vs. managers). Staff costs have been well contained in 3Q18 (-0.5% YoY), but we expect this to start creeping up from 4Q18.

We note that there are some final regulatory hurdles to cross, but management is fairly optimistic of getting the requisite approvals. EBITDA start-up losses for the 1st and 2nd year of operations are still expected to be S$8-10m and S$4-5m, respectively, before achieving breakeven in the 3rd year.

At this juncture, we believe that the street has largely accounted for these, and a key catalyst would be the narrowing of losses for Raffles Hospital Chongqing. For now, we maintain our FV estimate of S$1.26.

Source: OCBC Research - 30 Oct 2018