Tuesday 30 April 2013

Raffles Medical Group

OCBC on 29 Apr 2013

Raffles Medical Group’s (RMG) 1Q13 revenue rose 11.2% YoY to S$81.1m, while PATMI increased by 16.0% YoY to S$13.5m. Topline and bottomline constituted 23.3% and 22.2% of our FY13 forecasts, respectively. This was within our expectations as 1Q is seasonally RMG’s weakest quarter. The improved financial performance was driven largely by its higher-margin Hospitals Services Division and better operational efficiencies, resulting in operating leverage. We retain our forecasts on RMG given the in line set of results. However, we raise our fair value estimate from S$3.01 to S$3.22, now based on 29x FY13F EPS, which is in line with its peers’ average. Maintain HOLD.

1Q13 results within expectations
Raffles Medical Group (RMG) reported its 1Q13 results which were within our expectations. Revenue rose 11.2% YoY to S$81.1m, while PATMI increased by 16.0% YoY to S$13.5m, such that topline and bottomline constituted 23.3% and 22.2% of our FY13 forecasts, respectively. This is unsurprising as 1Q is seasonally RMG’s weakest quarter and we had expected this trend to continue this year. To put things in perspective, 1Q revenue and core PATMI had on average formed 23.5% and 21.7% of RMG’s full-year figure from FY10-12, respectively. 

Growth driven largely by Hospitals Services Division
RMG’s improved financial performance was driven largely by its higher-margin Hospitals Services Division, which experienced a 16.4% YoY increase in revenue. This increase was in turn propelled equally by both volume and ASP growth. Coupled with an improvement in operational efficiencies, the operating leverage enabled RMG’s bottomline to grow at a faster pace than its topline. Meanwhile, RMG’s Healthcare Services Division recorded a more modest 4.0% YoY increment in revenue, partly due to the absence of the Singapore Prison Service medical services contract (expired on end 2012).

Maintain HOLD on higher S$3.22 fair value estimate
Management updated us that it is awaiting a report from its property consultants before deciding on the next course of action with regards to its commercial podium at 30 Bideford Road. Construction for its Raffles Hospital extension will also take place this year, although a firm timeline was not provided. We retain our forecasts as RMG’s results were within our expectations. However, we raise our fair value estimate from S$3.01 to S$3.22, now based on 29x FY13F EPS, which is in line with its peers’ average. Maintain HOLD.

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