Raffles Medical Group

UOBKayhian on 4 June 2014

FY14F PE (x): 27.0
FY15F PE (x): 22.9
Breaking ground in 2H14. RMG is expected to commence construction of its new
hospital wing in 2H14 as most approvals are in place. The estimated cost is S$200m
with another S$5m-10m budgeted for equipment post the construction. Upon
completion in 2016, the GFA for its flagship hospital will rise 70%, from 307,789sf to
529,578sf. Including land cost, the total development cost is projected at around
S$310m.
Gradual progress in China expansion plans. RMG is still committed to its proposed joint
ventures in China but talks are ongoing. These include a JV with China Merchants to
develop a 250-bed integrated international hospital in Shenzhen and another JV with
Shanghai Lujiazui Co to develop an integrated international hospital with 400 beds in
Shanghai. Progress has been gradual and discussions are still ongoing. Having
operated in China, management is confident that they can navigate local issues such
as the hiring of foreign doctors and a key consideration is that RMG wants full
management control over its China operations to maintain quality and reputation.
Still the one to own. RMG remains our preferred healthcare stock owing to its strong
cashflow generation and visible expansion plans. We have raised our target price by
16% to a street-high of S$4.30 to reflect a higher terminal growth rate of 3.5%
(previously 3.0%). At our target price, the implied 2015F PE of 27.3x is close to its
+1SD PE of 28.6x. However, we think this is justified as 2014-16F ROE of 15.0-16.0%
is significantly higher than its long-term average ROE of 11.5% (1997-2013).