China: still in early days

• Chongqing hospital incurred an EBITDA loss of S$2.3m and estimated net loss of S$2.7m in 2Q19, which saw a step up from 1Q19 (EBITDA: -S$1.8m, net: -S$2.2m) as there were higher advertising and business promotion expenses. This, however, remains within the management’s full-year guidance of S$8m-10m EBITDA loss.
• It has now opened 150 beds with over 230 staff and mainly outpatient visits, although patient load and revenue contribution are still not meaningful.
• Management said that its network of medical centres in China is ramping up well, with 2 new clinics in Nanjing and more corporate customers signed up (including MNCs, auto companies, foreign embassies), which should benefit its China hospitals in terms of patient referrals.

Singapore: slow and steady

• Topline grew 5.6% y-o-y in 2Q19, across both healthcare and hospital services segments. A combination of higher revenue intensity and over 1% growth in patient volume contributed to the 3.4% y-o-y growth in hospital services revenue. Healthcare services revenue rose 7.4% y-o-y on the back of more insurance contracts and corporate clients.
• We understand that the capacity has expanded from 200 to 250 operational beds with the Raffles Extension; c.10% of the space has been leased out.

Maintain HOLD

• We make no changes to our FY19-21F EPS forecasts, SOP-based Target Price of S$1.10 and HOLD rating as we think the gestation costs of new hospitals have been largely priced in.
• Downside risks: poor overseas execution and unfavourable regulatory changes; faster ramp-up of Chongqing hospital will be the key near-term catalyst for the stock.