Maybank Securities' Eric Ong has kept his "buy" call and $1.65 target price on Raffles Medical Group BSL , following its latest move to acquire an undisclosed majority stake in a hospital in Vietnam.
The 120-bed American International Hospital in Ho Chi Minh City has been valued at US$45.6 million. Upon completion of the deal, Raffles Medical will be managing this hospital too.
According to Raffles Medical, AIH has seen steady growth in both outpatient and inpatient volumes since inception. "That said, we do not expect any near-term contribution from this proposed acquisition, which may take at least 6-9 months to complete, subject to the fulfilment of certain conditions and relevant approvals," says Ong.
Nonetheless, the deal will enable Raffles Medical to ride on growing demand for private healthcare services in Vietnam and augment its clinic operations there.
"Leveraging on its strong balance sheet, we believe this is an integral part of Raffles Medical's long-term strategy to expand its income stream, while diversifying the group’s hospital operations beyond Singapore and China," says Ong.
Separately, Raffles Medical has extended its contract to provide medical services at Connect@Changi until Feb 2025.
According to Ong, the contract at Conenct@Changi was won at $151,392 per month, which was 54% lower than the next closest bidder.
Ong believes Raffles Medical is able to put in such a lower bid because it has already sunk in one-off set-up costs.
"Nevertheless, we expect margins to normalise given the higher opex of running the facility," says Ong, whose $1.65 target price is based on a discounted cash flow valuation model.
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Raffles Medical shares traded at $1.24 as at 3.37pm, up 0.81%.
