Raffles Med posts 11% gain in Q1 profits

Raffles Medical Group posted net profit of S$11.6 million in the first quarter of 2012, an increase of 10.9 per cent from the same period last year.

The Group said that the increase was due to an overall improved operating performance driven by higher patient load and patient acuity.

As at 31 Mar, the Group had a healthy cash position of S$61.1 million.

Revenue rose 13.2 per cent to S$72.9 million from S$64.4 million last year.

SOFTENING OUR GROWTH ASSUMPTIONS

•Double-digit revenue and PATMI growth

•Still room for expansion

•Competition & cost pressures the key risks

1Q12 earnings slightly below expectations

Raffles Medical Group (RMG) reported 1Q12 revenue which was within our expectations but PATMI was slightly below. Revenue increased 13.2% YoY and 0.9% QoQ to S$72.9m, forming 23.2% of our fullyear estimates. EBIT improved 11.0% YoY but fell 20.6% QoQ to S$14.2m, while PATMI was up 10.9% YoY but declined 29.6% QoQ to S$11.6m, meeting 19.6% of our FY12 forecasts. 1Q is traditionally RMG’s weakest quarter, which explains the significant sequential drop in its earnings. We also expect the decanting of its existing hospital facilities to free-up ~15,000 sf of ‘new’ medical space to begin its contribution from 2Q12.

Hospital Services division to underpin its earnings momentum

Both its Hospital Services and Healthcare Services divisions contributed positively, with YoY revenue growth of 15.3% and 7.4%, respectively. The former was driven largely by a higher patient load and acuity. Moving forward, we see potential for further traction in the future, as the Singapore government is exploring the feasibility of engaging RMG in the treatment of subsidised patients, although details have yet to be worked out.

Growth trend still healthy, but easing our growth assumptions

We believe that RMG remains well-poised to capture the sturdy demand for high quality healthcare services from both local and foreign patients. This is buttressed by its strong track record and brand equity, coupled with increased depth of medical specialties on offer. Nevertheless, we soften our growth assumptions on the back of higher competitive and cost pressures. The latter is driven largely by an expected increase in staff costs, given the Singapore government’s decision to raise the wages of healthcare professionals. We lower our revenue and PATMI estimates for FY12/FY13 by 0.6%/1.9% and 3.0%/2.1%, respectively. Maintain BUY on RMG, albeit with a revised fair value estimate of S$2.58, versus S$2.66 previously (still based on 24x FY12F EPS).

BACK IN THE LIMELIGHT?

•Growth trend continues

•Possible sector re-rating from high profile IPOs

•Biosensors Int’l remains our top pick

4QCY11 results review

Under our Healthcare sector coverage for the recently concluded 4QCY11 results period, Raffles Medical Group (RMG) reported results which were in line with our expectations, while Biosensors International Group’s (BIG) core earnings came in slightly below our estimates. Both companies continued to showcase healthy growth trends, although BIG’s financials were boosted by the consolidation of JW Medical Systems. For RMG, we also like its high earnings quality and opine that it is sustainable, backed by its strong operating cashflow generating ability and robust industry fundamentals.

New listings could rekindle hype in sector

Media reports have recently highlighted Fortis Healthcare’s plans to list a US$400m business trust on SGX in 2Q12, following its decision to postpone the IPO of Religare Healthcare Trust last year due to unfavourable market conditions1. Another anticipated IPO could come from Khazanah Nasional’s listing of Integrated Healthcare Holdings (IHH) in 2H12, with a dual listing in Singapore and Malaysia a possibility. This could potentially raise proceeds of US$3b2. As a recap, Parkway Holdings (now part of IHH) was privatised in 2010 at ~37x trailing PER (based on EPS before exceptional items). Should this IPO materialise at similar, if not higher valuations, it might provide an impetus for a re-rating of the sector.

Maintain OVERWEIGHT on Healthcare sector

In our opinion, RMG [BUY; FV: S$2.66] would likely benefit the most in the event of a sector re-rating under the aforementioned circumstances, given its leading position as a quality private healthcare service provider. We reiterate our OVERWEIGHT rating on the Healthcare sector, underpinned by well-entrenched fundamentals such as growing affluence in the region and an aging population. Meanwhile, BIG [BUY; FV: S$1.95] remains our top pick in the sector. We see its recent share price weakness as a good buying opportunity.

RMG eyes revenue boost from expansion

Plans to launch new specialist centre and extend hospital

RAFFLES Medical Group (RMG) is eyeing a 50 per cent bump in revenue by 2014 from its expansion plans to launch a new specialist medical centre and extend Raffles Hospital.

‘We are hopeful that our topline would grow by 50 per cent due to a combination of the expansion of the hospital and the start-up of the Raffles Specialist Centre in Orchard, which would in total increase our floor area from 300,000 square feet to 450,000 square feet,’ said executive chairman Loo Choon Yong.

In addition to extending Raffles Hospital by some 102,400 sq ft, the group is also launching a specialist medical centre at Bideford Road. The medical centre is slated to come onstream in 1H2013 while expansion of the hospital is on track for completion by 2014.

At the same time, increasing the number of specialists is also expected to contribute to the topline.

This year, RMG plans to boost staff count by 200, recruiting specialists in fields such as oncology, neurology, fertility, orthopaedics and ophthalmology.

Commenting on how its growth plans would impact the bottom line, Dr Loo said both the bigger hospital and new medical centre would allow for greater efficiency, given more bed capacity and increased use of facilities.

Meanwhile, in an interview with Reuters yesterday, Dr Loo said that the group may raise its average service charge in Singapore by 4-5 per cent this year to keep up with anticipated salary increments.

The government is currently reviewing the salary structure of healthcare staff as it seeks to attract more people to work in the public health sector. This may require the private sector to follow suit to retain talent.

According to RMG, its fees for surgical cases work out 25-50 per cent cheaper versus comparable private tertiary hospitals, giving it some flexibility to work with when nudging up fees. The group has not yet decided exactly when this year the increase would kick in, it told BT.

Dr Loo also said in the Reuters interview that its loss-making medical centre in Shanghai, which was launched in 2010, is likely to swing into the black next year as costs stabilise and patient numbers grow, and that RMG is looking into the possibility of building a hospital in China.

For the financial year ended Dec 31, 2011, RMG posted an 11.3 per cent rise in net profit to $50.4 million thanks in part to a higher patient load and a wider range of medical specialties. Revenue rose 14.1 per cent to $272.8 million, spurred by growth in both hospital services and healthcare services.

RMG eyes revenue boost from expansion

Plans to launch new specialist centre and extend hospital

RAFFLES Medical Group (RMG) is eyeing a 50 per cent bump in revenue by 2014 from its expansion plans to launch a new specialist medical centre and extend Raffles Hospital.

‘We are hopeful that our topline would grow by 50 per cent due to a combination of the expansion of the hospital and the start-up of the Raffles Specialist Centre in Orchard, which would in total increase our floor area from 300,000 square feet to 450,000 square feet,’ said executive chairman Loo Choon Yong.

In addition to extending Raffles Hospital by some 102,400 sq ft, the group is also launching a specialist medical centre at Bideford Road. The medical centre is slated to come onstream in 1H2013 while expansion of the hospital is on track for completion by 2014.

At the same time, increasing the number of specialists is also expected to contribute to the topline.

This year, RMG plans to boost staff count by 200, recruiting specialists in fields such as oncology, neurology, fertility, orthopaedics and ophthalmology.

Commenting on how its growth plans would impact the bottom line, Dr Loo said both the bigger hospital and new medical centre would allow for greater efficiency, given more bed capacity and increased use of facilities.

Meanwhile, in an interview with Reuters yesterday, Dr Loo said that the group may raise its average service charge in Singapore by 4-5 per cent this year to keep up with anticipated salary increments.

The government is currently reviewing the salary structure of healthcare staff as it seeks to attract more people to work in the public health sector. This may require the private sector to follow suit to retain talent.

According to RMG, its fees for surgical cases work out 25-50 per cent cheaper versus comparable private tertiary hospitals, giving it some flexibility to work with when nudging up fees. The group has not yet decided exactly when this year the increase would kick in, it told BT.

Dr Loo also said in the Reuters interview that its loss-making medical centre in Shanghai, which was launched in 2010, is likely to swing into the black next year as costs stabilise and patient numbers grow, and that RMG is looking into the possibility of building a hospital in China.

For the financial year ended Dec 31, 2011, RMG posted an 11.3 per cent rise in net profit to $50.4 million thanks in part to a higher patient load and a wider range of medical specialties. Revenue rose 14.1 per cent to $272.8 million, spurred by growth in both hospital services and healthcare services.