• S$1.8m EBITDA loss in Chongqing
• Early days still
• FV of S$1.25

Results In-line

Raffles Medical Group’s 1Q19 results were within our expectations. Revenue grew 6.7% YoY to S$129.3m. The group’s Healthcare services division saw revenue grew 8.9% YoY, aided by increased contribution from an increase in premium from existing and new clients, the Primary Care Network Scheme and projects.

On the Hospital Services front, revenue grew 3.2% YoY as 1Q19 saw higher utilisation of inpatient capacities. Foreign patient volume growth continued to be challenging, as management noted competition from regional peers as well as an unfavourable SGD against regional currencies. PATMI fell 13.7% YoY to S$13.6m, which constitutes 22.5% of our full-year forecast (1Q18: 22.3% of FY18 PATMI).

Excluding Raffles Hospital Chongqing, PAT would have grown 2.1% YoY instead of a decrease of 11.2% YoY. The implied EBITDA loss from Chongqing came up to S$1.8m. As a recap, management has guided for EBITDA losses of ~S$8m for the 1st year of hospital operations in Chongqing.

1Q Volumes in China Affected by Seasonality

Management shared that Raffles Hospital Chongqing has seen ~500 patients and a few dozen surgery procedures in 1Q19. Pricing is comparable to other private hospitals, but certain promotions and discounts are being given out in a bid to drive initial volumes. For EBITDA losses in subsequent quarters, we note that management does not expect a significant stepup beyond the S$1.8m mark which was registered in 1Q19.

Staff count seems roughly unchanged from the previous quarter (~200 staff), as management continues to exercise cost discipline, given the nascent stage of operations. Raffles Hospital Chongqing currently offers practices such as paediatrics, O&G and internal medicine, but is looking to provide other services including cardiology and IVF in the days ahead.

We understand that management is currently working with a number of international insurance companies, MNCs and state-owned enterprises to build up its patient stream.

As for the group’s Shanghai hospital, construction seems to be on track with completion scheduled for end-2019, with operations likely to commence after the Chinese New Year festivities in 2020. We maintain BUY and our FV estimate of S$1.25 for now.

Source: OCBC Research - 30 Apr 2019