RafflesMed – DMG

Expect staff cost to inch up YoY

We recently hosted Raffles Medical at the OSK|DMG ASEAN Corporate Day. Key takeaways from the meetings: (1) Staff cost is expected to increase YoY, with increased headcount to prepare for operations at Thong Sia Building. (2) Continues to look out for suitable overseas expansion opportunities. (3) Dividend payout is likely to remain at about 40%. We continue to like Raffles Medical for its resilience and stable growth. Maintain BUY with DCF-based TP of S$2.67.

Increased headcount to prepare for expanded operations. Raffles Medical hired more staff as it prepares for operations at Thong Sia (its Specialist Medical Centre) and its hospital extension. Its plans for Thong Sia are progressing on track, and partial operations are expected in mid-2013, when a significant number of current tenants move out. Its hospital extension project is progressing well and construction is expected to be completed in 2015. Management also recently adjusted the salaries of its doctors, which would also contribute to YoY higher staff costs from 2Q onwards. However, management is optimistic that they would be able to progressively revise its prices upwards and still maintain competitiveness, given that its charges are still much lower than the other private hospitals. It aims to keep staff cost to below 50% of revenue (we are estimating 48%).

Still on the lookout for regional expansion opportunities. Raffles Medical remains interested in expanding its operations regionally. It remains keen in the China, Malaysian and possibly Vietnam markets, although management maintains that it would only proceed with the right partner. While it has a strong balance sheet and stable cash flows, management does not rule out the possibility of carrying out fund raising activities should there be a need.

Expects to maintain dividend payout. While Raffles Medical does not have a fixed dividend policy, management intends to keep the dividend payout ratio at 40%.

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