• Raffles Medical Group’s FY18 core PATMI of S$67.7m (flat y-o-y) met consensus expectations but was slightly above ours; EBITDA up 7.8% y-o-y on higher operating leverage.
• YTD patient volumes at Chongqing hospital still not meaningful due to festive holidays, but start-up costs are within initial guidance of S$8m-10m.
• We keep our HOLD call with an unchanged target price; better cost visibility in 1Q19F.

FY18 EBITDA +7.8% Y-o-y on Higher Operating Leverage

• RAFFLES MEDICAL GROUP LTD (SGX:BSL)’s FY18 core PATMI (excluding fair value gains of investment properties) was flat at S$67.7m, which came in line with consensus full-year forecasts but slightly above ours, as operating costs from the new Chongqing hospital (opened on 29 Dec 18) have largely been deferred to FY19F.
• FY18 EBITDA of S$102.5m was a positive surprise as it increased 7.8% y-o-y on higher operating leverage.

Singapore Unexciting, All Eyes on China Expansion

• Raffles Medical Group’s topline grew marginally by 2.4% y-o-y in FY18, largely due to a 6.0% increase in healthcare services as there was a new screening contract and addition of corporate clients. This mitigated a 0.8% y-o-y revenue drop in hospital services, which was a result of the refurbishment of some current inpatient facilities.
• With this largely completed, we expect stronger growth in Singapore operations from FY19F, driven by diversification of its patient markets, and the roll-out of enhanced health subsidies from the government.

Chongqing’s EBITDA Guidance Unchanged; Shanghai in 4Q19F

• While Raffles Medical Group's Chongqing hospital received all the necessary approvals in late-Dec 18, management expects patient footfall to ramp up post the festive period, and is targeting official opening closer to the end of 1H19. Initial guidance of an S$8m-10m EBITDA loss in the first year of operations is unchanged, and the hospital currently has about 200 staff in Chongqing, including 50 full-time specialists and doctors.
• Construction of the Shanghai hospital is progressing well, with estimated completion in 4Q19F.

More Initiatives to Improve Offering and Patient Delivery Care

• Raffles Medical Group also embarked on digitalisation via a new RafflesConnect platform in partnership with Doctor World, which enables patients to better engage with their doctors and improve monitoring of care.
• Its recent introduction of Raffles Shield continues to gain traction, with more differentiated products and tie-ups with distribution agents.

Maintain HOLD; 1Q19F Is Key to Watch for China Execution

• As we update our assumptions to reflect a slightly later opening of the Shanghai hospital (estimated completion of construction in 4Q19F) and expanded share base, our FY19- 20F EPS falls by 2.4-3.7%. We also introduce our FY21F forecasts; our HOLD rating and SOP-based Target Price of S$1.19 remain intact.
• Upside/ downside risks to our HOLD call could stem from overseas execution and regulatory changes.
• Raffles Medical Group also announced a final DPS of 2.0 Scts, bringing FY18 DPS higher to 2.5 Scts.

Source: CGS-CIMB Research - 26 Feb 2019