China – Chongqing and Shanghai hospitals
Management maintained EBITDA loss guidance for each of the hospitals of S$8-10mn in the first year and S$4-5mn in the second year before breaking even in the third year of operation.
RafflesHospital Chongqing commenced operations since January 2019 and is now operating round the clock and staffed by a team of multi-disciplinary international and local doctors. The hospital has the potential to be a 700-bedder and is located in the New North District of the Liangjiang New Area. The hospital is currently in negotiation with the authorities to allocate 100 out of the 700 beds for the yibao insurance (local medical insurance).
RafflesHospital Shanghai’s building structure was completed in May 2019. The interior fit-out and purchase of major equipment are now underway. Recruitment of the hospital opening team has also begun. Operations should commence in 1H20 and it will be a 400-bed tertiary hospital located between Shanghai Pudong International Airport and Shanghai Hongqiao International Airport in the heart of Pudong New Bund, a free trade zone.
Maintain Neutral with a lower TP of S$1.05 (previous TP S$1.09).
The Group’s bet on China is to leverage on the massive population size, rising affluence of its people as well as rising demand for private healthcare. However, the key risks to our forecasts are longer than expected gestation period and margin pressures if the Group is unable to scale patient volumes in China. With proper and delicate execution, the China venture could bring long-term growth prospects for the Group.
Potential re-rating catalysts: (i) Stronger demand from the MOH partnership; (ii) Shorter than expected gestation period in China hospitals; (iii) higher investment-holding revenue growth with the remaining 80% of vacant spaces leased out.