Raffles Medical

UOBKayhian on 18 Sept 2013

FY13F PE (x): 26.3
FY14F PE (x): 22.8

Resilient business from foreign patients. Contrary to the decline in foreign patients’ admission seen by IHH in 2Q13, Raffles Medical Group (RMG) continues to enjoy rising admissions. Year-to-date, we understand
RMG’s foreign patients’ admission rose by a low single-digit. In our view, the resilience is due to its undemanding pricing structure vs competitors’ where comparable treatments are priced at a premium of 15-16%. Foreign patients account for a third of patients at RMG’s hospitals and management tries to limit country concentration risks by targeting new markets (such as Myanmar). Currently, Indonesians account for 20-21% of RMG’s total foreign patients.

Maintain Buy. RMG remains a BUY for it its visible earnings growth and reasonable valuations. Our DCF-based target price of S$3.78 implies 27.3x 2014F PE, close to +1SD to its mean PE of 28.6x. We think it deserves the valuation given its strong cash flow generation and healthy financial position, which could fund potential M&A or other investments. Its 2013-15F ROE of 15.8-16.9% are also higher than its long-term average ROE of 11.0% (1997-2012).