RafflesMed – OCBC

DOWNGRADE TO HOLD; TONING DOWN ASSUMPTIONS

  • Uncertainty over new Specialist Centre
  • Paring FY13F EPS estimate by 5%
  • No near-term impact from HK land tender

Delay over new Specialist Centre could shroud earnings visibility

Raffles Medical Group (RMG) is seeking to expand its capacity with a new Specialist Centre at 30 Bideford Road (~42,668 sf). However, we believe that there is still uncertainty over the possible commencement date of operations as the authorities had rejected its first application in Oct last year. We adopt a more conservative approach, and assume that the delay in operations would stretch until late 2013 or early 2014 (previously 1H13). We believe that there could also be a negative flowthrough effect to its Raffles Hospital as this new Specialist Centre was intended to act as an additional platform for referrals for follow-up diagnostic and treatment services. We thus trim our FY13F revenue and EPS estimates by 2.7% and 5.0%, respectively.

Awaiting results of private hospital land tender bid in HK

RMG is currently awaiting the results of its Hong Kong land tender bid for a private hospital development (submitted on 27 Jul 2012), with results expected to be announced in early 2013. Regardless of the outcome of the tender results, we opine that there would be no material near-term financial impact on RMG, given that this is a greenfield project and capex would take place in stages. We expect this project to be financed by RMG’s strong operating cashflow generation and debt.

Downgrade to HOLD on revised estimates and valuation grounds

RMG’s share price has performed commendably since we upgraded the stock to a ‘Buy’ on 10 Oct 2012 (please refer to our report titled “Time to Revisit This Stock”), jumping 18.2% against the STI’s 4.7% gain over the same period. We now downgrade RMG to HOLD, as we lower our fair value estimate from S$2.82 to S$2.68 as a result of our reduced projections, still pegged to 24x FY13F EPS.

RafflesMed – OCBC

DOWNGRADE TO HOLD; TONING DOWN ASSUMPTIONS

  • Uncertainty over new Specialist Centre
  • Paring FY13F EPS estimate by 5%
  • No near-term impact from HK land tender

Delay over new Specialist Centre could shroud earnings visibility

Raffles Medical Group (RMG) is seeking to expand its capacity with a new Specialist Centre at 30 Bideford Road (~42,668 sf). However, we believe that there is still uncertainty over the possible commencement date of operations as the authorities had rejected its first application in Oct last year. We adopt a more conservative approach, and assume that the delay in operations would stretch until late 2013 or early 2014 (previously 1H13). We believe that there could also be a negative flowthrough effect to its Raffles Hospital as this new Specialist Centre was intended to act as an additional platform for referrals for follow-up diagnostic and treatment services. We thus trim our FY13F revenue and EPS estimates by 2.7% and 5.0%, respectively.

Awaiting results of private hospital land tender bid in HK

RMG is currently awaiting the results of its Hong Kong land tender bid for a private hospital development (submitted on 27 Jul 2012), with results expected to be announced in early 2013. Regardless of the outcome of the tender results, we opine that there would be no material near-term financial impact on RMG, given that this is a greenfield project and capex would take place in stages. We expect this project to be financed by RMG’s strong operating cashflow generation and debt.

Downgrade to HOLD on revised estimates and valuation grounds

RMG’s share price has performed commendably since we upgraded the stock to a ‘Buy’ on 10 Oct 2012 (please refer to our report titled “Time to Revisit This Stock”), jumping 18.2% against the STI’s 4.7% gain over the same period. We now downgrade RMG to HOLD, as we lower our fair value estimate from S$2.82 to S$2.68 as a result of our reduced projections, still pegged to 24x FY13F EPS.

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