Raffles Medical Group

Kim Eng on 21 Feb 2012


Raffles Medical Group (RFMD SP) – Strong 4Q bolstered growth
Previous day closing price: $2.44
Recommendation – Hold (downgraded)
Target price – $2.73 (maintained)


In-line results, downgrade to Hold. Raffles Medical Group (RMG) reported FY11 revenue of $272.8m (+14.1% YoY) and net profit of $50.4m (+11.3% YoY), bolstered by a seasonally stronger 4Q11. Excluding a $2.1m fair value investment gain on investment properties, the results were within our expectations. A final dividend per share of 3 cents was declared. Full-year dividend per share thus came up to 4 cents, translating into a yield of 1.6%. We maintain our target price of $2.73 but downgrade our recommendation to Hold as the share price has risen and is now near the target price.


Patient load and acuity up. Both the hospital services and healthcare services segments recorded an increase in patient load and patient acuity, fuelling segmental revenue growth of 14.6% YoY and 10.9% YoY, respectively, with sustained margins to boot. We believe RMG will continue to benefit from the demand for high-quality healthcare services both at home and regionally. The government’s recent initiative to expand the Community Health Assist Scheme may also be a boon to its primary care business.


In support of continual growth. To help ease its current capacity constraints, RMG has shifted its administrative staff out of Raffles Hospital building to a rented office in Middle Road and is converting the Banquet eatery on the ground floor into a clinical services area. It also plans to add more doctors and staff to meet the increasing demand. We believe RMG is well able to sustain its current level of growth in FY12 even before its new capacity comes on-stream.


No major impact from recent Budget measures. In its recent Budget 2012 speech, the government announced its intention to expand public hospital capacity with a 30% increase in acute hospital beds in five years. While this may create competition for the private sector, we think that the supply of beds will still remain tight, given that the population has grown by more than 20% since 2005 and will continue to rise.
Maintain target price of $2.73. We raise our net profit forecasts for FY12F-13F by a marginal 1.4-2.3% to account for higher investment income. Our DCF-based target price is unchanged at $2.73, but we downgrade the stock to Hold as the potential upside is now less than 15%.