RafflesMed – CIMB

Courting Miss Hong Kong

RFMD has submitted its tender for a private hospital development in Hong Kong. While there are no details of tender pricing or capex guidance, we believe the move is a positive one as the healthcare dynamics in Hong Kong now favour new curative healthcare players.

This tender is the most concrete overseas expansionary commitment the group has made since setting up its medical centre in Shanghai in 2010. Our forecasts and target price, pegged at 22x CY13 P/E, reflecting its mid-cycle valuation, are unchanged. Maintain Outperform.

What Happened

RFMD has submitted a tender called by the Hong Kong Government for the development of a private hospital on the Aberdeen Inland Lot No. 458 site. Tender results are likely be released in 4Q12.

What We Think

There are a few factors that favour new curative healthcare players in the Hong Kong market, including frequent long waiting lists for public hospitals causing a spillover to private sector and PRC patients choosing Hong Kong as a destination for their medical needs. All these are expected to drive the demand for private sector medical services in the territory.

When asked, management was understandably tight-lipped about the tender pricing. What we do know is that the site can accommodate a 300-500 bed hospital that will sit on a built-up of between 28,000–46,000 sq meters. Land premium is roughly 30% of the weightage. Good evidence-based medical practice, professional development, quality assurance as well as consistency and transparency in charging professional fees are also criteria being evaluated. Should the group be successful in this tender, capex requirements will only come in by 2Q13 and are to be paid progressively over three years.

What You Should Do

Stay invested. With readjustments in its inpatients billings, we see ample room for RFMD to catch up with rates, albeit gradually initially (5-10% in 4Q12). This provides scope for the company to close its pricing gap with its competitors. RFMD is still a laggard play in this sector; it has a strong balance sheet among peers in the region. ROEs have also been strong. Maintain Outperform.

RafflesMed – CIMB

Courting Miss Hong Kong

RFMD has submitted its tender for a private hospital development in Hong Kong. While there are no details of tender pricing or capex guidance, we believe the move is a positive one as the healthcare dynamics in Hong Kong now favour new curative healthcare players.

This tender is the most concrete overseas expansionary commitment the group has made since setting up its medical centre in Shanghai in 2010. Our forecasts and target price, pegged at 22x CY13 P/E, reflecting its mid-cycle valuation, are unchanged. Maintain Outperform.

What Happened

RFMD has submitted a tender called by the Hong Kong Government for the development of a private hospital on the Aberdeen Inland Lot No. 458 site. Tender results are likely be released in 4Q12.

What We Think

There are a few factors that favour new curative healthcare players in the Hong Kong market, including frequent long waiting lists for public hospitals causing a spillover to private sector and PRC patients choosing Hong Kong as a destination for their medical needs. All these are expected to drive the demand for private sector medical services in the territory.

When asked, management was understandably tight-lipped about the tender pricing. What we do know is that the site can accommodate a 300-500 bed hospital that will sit on a built-up of between 28,000–46,000 sq meters. Land premium is roughly 30% of the weightage. Good evidence-based medical practice, professional development, quality assurance as well as consistency and transparency in charging professional fees are also criteria being evaluated. Should the group be successful in this tender, capex requirements will only come in by 2Q13 and are to be paid progressively over three years.

What You Should Do

Stay invested. With readjustments in its inpatients billings, we see ample room for RFMD to catch up with rates, albeit gradually initially (5-10% in 4Q12). This provides scope for the company to close its pricing gap with its competitors. RFMD is still a laggard play in this sector; it has a strong balance sheet among peers in the region. ROEs have also been strong. Maintain Outperform.

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