Raffles Medical - Just what the doctor ordered

􀂾 Story: Raffles Medical Group 2Q07 results were slightly above
our expectation.
􀂾 Point: Net profit increased from S$3.8m to S$15.8m mainly due
to fair value gain of Raffles Hospital. Stripping off the EI, net profit
rose 44% y-o-y to S$5.5m due to higher patient load and a wider
range of medical specialties.
􀂾 Relevance: With the increased emphasis on healthcare due to
an aging population, increase in wealth accumulation and
Singapore’s drive to be a leading medical hub, we see Raffles
Medical benefitting from both local and international patients. We
maintain Buy with an increased target price of S$1.80.
2Q07 result slightly above our expectation. Revenue grew 26.3% yoy to
S$41.4m. Revenue from Healthcare (clinic and insurance segments) and
Hospital Services grew 17.6% and 33.2% respectively. Net profit rose
315% mainly due to the share of profits in Raffles Hospital’s fair value
gain. After striping out the exceptional gain, net profit at S$5.5m was
44.5% higher than the same period last year. An interim ordinary
dividend of 1.0cents per share for 2Q07 was declared, which will be paid
on 7th September. They are targeting 2.5cents of ordinary dividend
payout for FY07, the same as last year.
New airport medical centre to serve as regional hub for Eastern
Singapore. The group has been operating three medical clinics in
Singapore’s Changi Airport since 1990. It is now starting a medical
centre at the new Terminal 3. The 24-hour centre will provide general
practice, health screening, Obstetrics and Gynaecology, and Aesthetics
services. It will also serve as a regional medical centre for those living in
the East who need late night emergency treatments.
Two strategic investors propel overseas expansion. RMG had
undertaken a placement of 50m new shares in the capital of RMG to VScience
Investments, a wholly-owned subsidiary of Temasek Holdings
and Qatar Investment Authority. Each subscribed 25m new shares at
S$1.30 each, giving each a 4.87% sake in RMG based on the enlarged
share capital of $513.5m. Total proceeds raised approximate S$63m. The
tie-up with Qatar Investment Authority will enable RMG to leverage on
the former’s connection in the fast growing Middle East region.
Maintain Buy, TP S$1.80. We have factored in the full ownership of the
hospital and adjusted our assumptions in our forecast to take into
account the increase in efficiency and EBIT margin (from 12% to 14%)
for the hospital operation. This translates to the new target price to
S$1.80, backed by DCF calculations. Maintain Buy.