RafflesMed – CIMB

Silverlining beyond short-term

Two issues surfaced in this result announcement. Salary increases appear to be a trend while hiccups in approvals in the new Orchard Specialist Centre were a surprise. We believe the stage is still set for operating efficiency that can come forth with these factors addressed.


3Q12 result was 10% below our expectation with 3Q12 and 9M12 EPS forming 21% and 60% of our previous FY12 forecasts, respectively. FY12-14 EPS estimates are cut by 2-10% for new staff cost adjustments. Still based on 22x P/E (mid-cycle valuations), our target price rolled over to FY14 is higher. Outperform as operating efficiency resume.

Staff cost hikes in play

The slowdown in profit growth was due to the rampant increase in costs, rather than stagnating in revenue. Revenue showed healthy growth of 14% yoy to S$78.7m in 3Q12. Staff costs (+16.8% yoy) was the culprit in this result. The group is merely keeping pace with industry-wide salary increments and staff recruitment to meet its business expansion. In spite of that, EBIT did not suffer but grew 4.4% yoy to S$15m, with the EBIT margin stable at 19.2%.

But operation efficiency would resume

Staff currently deployed at the Singapore Prisons will be redeployed in the new year to other parts of the group as well as to new clinics and services that will be opened in 2013, thereby suggesting that there will be a slowdown in new hiring, reversing the trend of continuous salary increases. Operating efficiency should follow.

Bideford still on for 2013

The application for the change of use of the commercial podium at 30 Bideford Road for medical clinics has not been successful. Management assured us that the group will work with the relevant authorities to amend its plans so as to accommodate such concerns and the resubmission will come forth shortly. Our belief is that clinical operations would still commence sometime in the later part of 1H13, if not early-2H13.

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