SINGAPORE (June 20): CIMB Research is keeping its “reduce” rating on Raffles Medical Group (RMG) and lowering its target price by 12 cents to $1.25.

Already, Raffles Medical has seen its share prices retreat by close to 5% after the hospital operator turned in a set of uninspiring results in 1Q17. But CIMB believes there is still room for the counter to fall further.

“Raffles Medical is still trading at 25.8x CY18 EV/EBITDA, above peers’ 19x and its 10-year mean of 20x,” says CIMB analyst Jonathan Seow in a Monday report. “As valuations are still lofty, we do not think we are at the bottom yet.”

RMG posted relatively flat earnings of $15.5 million for the first quarter ended March, just 0.1% higher than a year ago.

Revenue for 1Q fell 1.7% to $114.9 million, largely due to softer-than-expected demand from foreign patients.

RMG’s healthcare and hospital services divisions recorded revenue declines of 2.0% and 1.9%, respectively.

(See: Raffles Medical 1Q earnings stay flat at $15.5 mil)

“Margins are now at a low but could go even lower,” says Seow. “With large projects coming onstream over the next 12 months, we strongly believe margin pressure will further intensify over FY17-18F.”

RMG is scheduled to open its Singapore hospital extension in 4Q17, and the 700-bed Chongqing hospital in mid-2018.

According to Seow, the new openings could see RMG’s FY18F EBITDA fall by a staggering 50%.

After including costs estimates from Chongqing hospital, CIMB is lowering its EPS forecasts for FY18F and FY19F by 9 and 16%, respectively.

“Factors mitigating such a steep fall in Raffles Medical Group’s current earnings will have to come from improved earnings from its core operations in Singapore or a better-than-expected ramp-up in its Singapore hospital extension,” says Seow.

“However, Raffles Medical Group’s recent results still suggest weak demand and slowing medical tourism,” he adds.

As at 4.03pm, shares of Raffles Medical Group are trading half a cent lower at $1.36.