China – Chongqing and Shanghai hospitals
Management maintains the guidance of EBITDA loss of S$8-10mn and S$4-5mn in the first and second year respectively before the hospitals breaks even in the third year of operation. The Chongqing hospital has conducted its soft launch in January 2019 and the Shanghai hospital to open in 4Q19. We initially modelled in gestation costs into our FY18 EBITDA. However, due to the delayed recognition of gestation costs for the two hospitals in China, we lower our EBITDA estimates for FY19-20e by c.3%.
In collaboration with MOH, RafflesHospital opened a new inpatient ward catering to the needs of patients under the Emergency Care. Management expects the Singapore budget to have a positive impact as some of the additionally subsidised Merdeka generation filters into Raffles Medical due to CHAS etc.
Downgrade to Neutral with lower TP of S$1.09 (previous TP S$1.16)
We trim our FY19-20e EBITDA estimates by c.3-5% to account for gestation costs in the two hospitals in China. The demand for international standard healthcare by the Chinese middle class will bring Raffles Medical into a new and exciting phase of growth. The track record, reputation and preparation by the company makes this a compelling opportunity.
Potential re-rating catalysts: (i) Stronger demand from the MOH partnership; (ii) Better than expected performance in China hospitals.