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Launch of Raffles Medical's China hospitals a step closer to reality

Samantha Chiew
Samantha Chiew • 2 min read
Launch of Raffles Medical's China hospitals a step closer to reality
SINGAPORE (May 3): OCBC is reiterating its “buy” recommendation on Raffles Medical with a fair value estimate of $1.26.
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SINGAPORE (May 3): OCBC is reiterating its “buy” recommendation on Raffles Medical with a fair value estimate of $1.26.

This came on the back of the group announcing that its 1Q18 earnings increased by 1.7% to $15.8 million compared to $15.5 million a year ago.

Revenue was 4.6% higher at $120.2 million from $144.9 million last year, as revenue from its Healthcare Services division and its Hospital Services division grew by 6.8% and 4.2%, respectively.


See: Raffles Medical posts 1.7% rise in 1Q earnings to $15.8 mil

While the group’s Hospital Services division was boosted largely by higher domestic load, what came as a surprise was the about 2% y-o-y increase in foreign patient volume in 1Q18.

In a Wednesday report, analyst Joseph Ng says, “However, one quarter does not make a year, and we prefer to refrain from drawing any conclusions from this.”

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In addition, the group’s plans to open its overseas hospitals appear to be on track, with Raffles Hospital Chongqing and Raffles Hospital Shanghai slated for opening in 4Q18 and 2H19, respectively

The group’s management has maintained its guidance for start-up losses at both the Chinese hospitals, involving about $10 million and $4 million in EBITDA losses per hospital for the first and second year of operations, respectively. The group expects to break even on the third year.

“At Raffles Hospital Chongqing, we believe that it will open in 4Q18 with about 200 private beds. While there has been some discussion on the possibility of rolling out an additional 100 public beds, we think that this is not likely in the near term, as more time could be needed to conclude discussions with the local authorities on its implementation,” says Ng.

See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries

Currently, the group is in discussions with both local and international insurers in China, and if successful should aid in providing a healthy stream of patients to both hospitals.

In the analyst’s opinion, the lower y-o-y projected PATMI levels for FY18 and FY19, which resulted largely from start-up losses, should have been well-digested by the street as the group’s management has been guiding this for the past few quarters.

As at 3.00pm, shares in Raffles Medical are trading 2 cents lower at $1.14 or 29.9 times FY18 earnings with a dividend yield of 2.0%.

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