Decent 3Q14 results.  Raffles Medical's 3Q14 net profit grew  11% YoY, bringing  9M14  net  profit  to  SGD46m,  up  9%  YoY.  Both  its  business segments,  namely  healthcare  services  and  hospital  services,  recorded YoY  revenue  growth  of  7.3%  and  16.4%  respectively  in  3Q14.  In  line with the historical trend, we expect Raffles Medical to report strong 4Q14 results and estimate 2014 profit at SGD69m. 

Singapore expansion plan  on track.  Raffles Medical has finalised the development  plans  for  its  hospital  extension,  with  groundbreaking scheduled to take place in Dec 2014. It is also working on starting a new medical centre at Holland Village, Singapore during 2H16. 

China  hospital  plans  progressing  slower  than  expected.  Raffles Medical has entered into a non-binding agreement with China Merchants Group  to  explore  joint  venture  opportunities  in  building  a  hospital  in Shekou,  Shenzen.  Also,  the  group,  together  with  Shanghai  Binjiang International  Tourism  Development,  intends  to  develop  an  integrated hospital in Pudong, Shanghai. While the progress has been slow  and notimeline has been indicated, the group  is confident that the  projects  will go ahead. 

Valuation  seems  stretched.  Its  share  price  has  moved  up  25%  YTD and is trading at a 29x 1-year forward P/E based on our estimate, which is +2SD above its historical 1-year forward P/E. Compared to its regional peers, which are expected to generate 15-20% EPS growth, we  projectRaffles Medical to deliver only 11% profit growth in 2015. We value the company at  a 30x 2015 P/E (vs its regional peer average of 36.5x  2015 P/E).  Downgrade  the  stock  to  NEUTRAL  (from  Buy)  with  a  revisedSGD4.05 TP (from SGD3.67), implying a 3% upside.

 

Source: RHB