We believe that there are still ongoing uncertainties over the possible commencement date of Raffles Medical Group’s (RMG) proposed new Specialist Centre in the Orchard area. We thus adopt a more conservative approach, and assume that the delay in operations would stretch until late 2013 or early 2014 (previously 1H13). This could have a negative flow-through effect to its Raffles Hospital as this new Specialist Centre was intended to act as an additional platform for referrals. Hence, we trim our FY13F revenue and EPS estimates by 2.7% and 5.0%, respectively. This lowers our fair value estimate from S$2.82 to S$2.68, still pegged to 24x FY13F EPS. Coupled with RMG’s recent strong share price performance, we downgrade the stock from Buy to HOLD.
Delay over new Specialist Centre could shroud earnings visibility
Raffles Medical Group (RMG) is seeking to expand its capacity with a new Specialist Centre at 30 Bideford Road (~42,668 sf). However, we believe that there is still uncertainty over the possible commencement date of operations as the authorities had rejected its first application in Oct last year. We adopt a more conservative approach, and assume that the delay in operations would stretch until late 2013 or early 2014 (previously 1H13). We believe that there could also be a negative flow-through effect to its Raffles Hospital as this new Specialist Centre was intended to act as an additional platform for referrals for follow-up diagnostic and treatment services. We thus trim our FY13F revenue and EPS estimates by 2.7% and 5.0%, respectively.
Awaiting results of private hospital land tender bid in HK
RMG is currently awaiting the results of its Hong Kong land tender bid for a private hospital development (submitted on 27 Jul 2012), with results expected to be announced in early 2013. Regardless of the outcome of the tender results, we opine that there would be no material near-term financial impact on RMG, given that this is a greenfield project and capex would take place in stages. We expect this project to be financed by RMG’s strong operating cashflow generation and debt.
Downgrade to HOLD on revised estimates and valuation grounds
RMG’s share price has performed commendably since we upgraded the stock to a ‘Buy’ on 10 Oct 2012 (please refer to our report titled “Time to Revisit This Stock”), jumping 18.2% against the STI’s 4.7% gain over the same period. We now downgrade RMG to HOLD, as we lower our fair value estimate from S$2.82 to S$2.68 as a result of our reduced projections, still pegged to 24x FY13F EPS.
Raffles Medical Group (RMG) is seeking to expand its capacity with a new Specialist Centre at 30 Bideford Road (~42,668 sf). However, we believe that there is still uncertainty over the possible commencement date of operations as the authorities had rejected its first application in Oct last year. We adopt a more conservative approach, and assume that the delay in operations would stretch until late 2013 or early 2014 (previously 1H13). We believe that there could also be a negative flow-through effect to its Raffles Hospital as this new Specialist Centre was intended to act as an additional platform for referrals for follow-up diagnostic and treatment services. We thus trim our FY13F revenue and EPS estimates by 2.7% and 5.0%, respectively.
Awaiting results of private hospital land tender bid in HK
RMG is currently awaiting the results of its Hong Kong land tender bid for a private hospital development (submitted on 27 Jul 2012), with results expected to be announced in early 2013. Regardless of the outcome of the tender results, we opine that there would be no material near-term financial impact on RMG, given that this is a greenfield project and capex would take place in stages. We expect this project to be financed by RMG’s strong operating cashflow generation and debt.
Downgrade to HOLD on revised estimates and valuation grounds
RMG’s share price has performed commendably since we upgraded the stock to a ‘Buy’ on 10 Oct 2012 (please refer to our report titled “Time to Revisit This Stock”), jumping 18.2% against the STI’s 4.7% gain over the same period. We now downgrade RMG to HOLD, as we lower our fair value estimate from S$2.82 to S$2.68 as a result of our reduced projections, still pegged to 24x FY13F EPS.
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