Raffles Medical Group Ltd: Expenses coping well to softer conditions August 8, 2018 680

  • 2Q18 PATMI was within expectations, but revenue trending below our estimates
  • Cost is coping well with the softer revenue growth as margins expanded
  • Clinic revenues rising but offset by softer hospital revenues
  • Maintain Accumulate with unchanged TP of S$1.32. Our earnings forecast is unchanged.

The Positives

+ Cost contracted to improve margins. Staff cost managed to contract 2% YoY in 2Q18 despite the expansion in The decline was due to the variability in staff compensation and further cost restructuring at MC Holdings.

+ Raffles Specialist Centre expansion is beginning to fill up. The new Raffles Specialist Centre (Raffles Hospital) commenced operation since 22 Jan-18. More wards are beginning to open and with improved patient facilities and aesthetics. Recall that 15 specialist centres relocated or expanded to this new expansion. Retail space of around 25,000 sft has been substantially leased out.

The Negative

– Pressure from public hospitals and medical tourism. Public hospitals account for 80% of the total beds. They have the critical mass of subsidised patients to offer more competitive price, if necessary. The private hospitals are clearly losing some patients to the public hospitals as industry data has reflected this year. On foreign patients, the stronger Singapore dollar relative to regional counties make options in Bangkok, Kuala Lumpur and Penang more attractive. The more price sensitive customer base will look for a cheaper With a stagnant local population, foreign patients especially with their higher intensity of care, is an important source of patient flow for any hospital. At Raffles, foreign patients account for around 30% of total inpatients.


Expect some front-loading of staff cost as Chongqing hospital opens in 4Q18. There will be the typical gap up in fixed cost (staff and depreciation) before beds start to fill up. In the first year, 120 doctors will be employed to cater to the major disciplines. Shanghai hospital will open in 2H19.

Maintain Accumulate with unchanged TP of S$1.32

The insatiable 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.

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