Raffles Medical – CIMB

Strong 4Q09, dividend lifted

Maintain Outperform; results above. With a stronger-than-expected 4Q09 net profit of S$11.9m (+24.3% yoy, 31.3% of our full-year forecast), FY09 net profit was S$37.8m (+20.1%), 7.9% ahead of our expectations owing to robust operating results from Hospital Services. The results also beat consensus expectations. We raise our FY10-11 estimates by 2.1-2.4% to reflect higher revenue and margin assumptions for both healthcare services and the hospital division. We also introduce FY12 numbers. Our target price rises from S$1.63 to S$1.66 following our upgrade, still based on 16x CY11 P/E. With its defensive business that delivers consistent earnings, maintain Outperform. We expect stock catalysts from the addition of clinics, expansion of medical specialties, and higher foreign-patient catchments. 

Occupancy and patient load steady. Revenue from Healthcare Services and the hospital segment grew 10.2% and 7.9% yoy respectively. Average occupancy was stable at around 60%. Foreign patients still formed a third of the patient load with Indonesian patients accounting for 22% of the foreigners. This partly explained the increase in foreign patient volume. 

Hallmark operating efficiencies. Operating profit increased to S$45.5m (+16.6% yoy) in FY09, attributable to improved patient admissions on the back of more clinics, added services and operating leverage. FY09 EBITDA margins improved 1.2% pts yoy to 23.8%. Staff expenses for FY09 rose only 6.7% yoy, below the pace of revenue growth. 

Increase of DPS to 3Scts. Balance sheet was robust with a net cash position of S$49.9m. We mentioned before that RFMD could possibly use its balance sheet for capital-management exercises or higher dividend payouts. The group did not disappoint, having raised its DPS to 3 Scts for the year (from 2.5 Scts in FY08). 

Organic FY10 growth. The group plans to launch four new clinics in FY10 (Changi Business Park, Mapletree Business Park, Marina Boulevard and Serangoon). Within its flagship hospitals, new bed rollout and space rationalisation to make room for more beds will come in the year.

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