RafflesMed – Kim Eng
Valuation gap has closed
• Raffles Medical reported a 14.9% YoY increase in 2Q12 revenue to SGD76.9m while corresponding net profit rose by 6.9% YoY to reach SGD12.4m. Results were within our expectations with 1H12 net profit making up 44% of our FY12F forecast. The company also declared an interim dividend of 1.0 cents per share.
• As expected, the company experienced margin compression due to higher staff cost, following wage and headcount increases. However, Raffles Medical has the capacity to raise pricing and we expect it to do so in the following quarters, which would mitigate the effects of the higher staff cost.
• We previously highlighted the deep valuation discount between Raffles Medical and its peers. Given the 18% surge in share price after our last BUY call, the valuation gap has now closed. While we maintain our SGD2.71 DCF-based target price, we downgrade the stock to a HOLD given that potential upside is now 5%. Implied FY12F/13F PERs based on our target price are 26.7x and 23.3x respectively.