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Raffles Medical likely to remain range-bound as it finds its footing in China, analysts say

Stanislaus Jude Chan
Stanislaus Jude Chan • 3 min read
Raffles Medical likely to remain range-bound as it finds its footing in China, analysts say
SINGAPORE (Oct 31): Analysts are maintaining their “hold” recommendations on Raffles Medical Group (RMG), after the group posted a 16.9% drop in 3Q19 earnings on the back of gestation losses for its new hospital in Chongqing, China.
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SINGAPORE (Oct 31): Analysts are maintaining their “hold” recommendations on Raffles Medical Group (RMG), after the group posted a 16.9% drop in 3Q19 earnings on the back of gestation losses for its new hospital in Chongqing, China.

Earnings for the 3Q19 ended September fell to $13.6 million, despite a 7.8% rise in revenue to $130.5 million.


See: Raffles Medical posts 16.9% drop in 3Q earnings to $13.6 mil on gestation losses from Chongqing hospital

Raffles Medical’s bottom-line was hit by an 8.8% increase in staff costs to $67.9 million and a 29.9% rise in other operating expenses to $8.6 million – both largely related to RafflesHospital Chongqing, which was opened in January this year.

The group also plans to open another hospital in China, RafflesHospital Shanghai, later this year.

In a statement accompanying its results announcement on Oct 29, the group says recruitment of the RafflesHospital Shanghai opening team has begun, with the interior fit-out and purchase of major equipment now underway.

This is expected to contribute to Raffles Medical’s subdued near-term outlook.

“Near term we believe the share price is likely to stay range-bound given time needed for the new projects to stabilise,” OCBC Investment Research in a Tuesday report.

However, the research team notes that momentum at its new Chongqing hospital is expected to improve over time, driven by increasing patients from nearby Chinese cities such as Chengdu and Guangzhou.

OCBC has a “hold” call on Raffles Medical with a fair value estimate of $1.02.

Meanwhile, Maybank Kim Eng Research is keeping its FY19-21E earnings per share estimates largely unchanged, as it says start-up losses from RafflesHospital Chongqing were “as expected”.

However, the brokerage is now factoring in risks that Raffles Medical “may take longer than expected to scale patient load in China”.

As such, Maybank is moderating is FY18-29E PATMI CAGR to 7.4%, down from its previous forecast of 9.3%.

“RMG may need more time than expected to build brand familiarity and trust among potential patients to scale revenues over the longer term. To account for this, our revenue growth expectations are now more conservative,” says analyst Gene Lih Lai in a Wednesday note.

Maybank is maintaining its “hold” call on Raffles Medical with a marginally higher target price of $1.07, up from $1.05 previously.

“Upon seeing evidence of stronger than expected traction in China, we may revise growth expectations higher,” Gene adds.

As at 2.54pm, shares in Raffles Medical are trading 1 cents lower at $1.01.

According to OCBC valuations, this implies an estimated price-to-earnings (PE) ratio of 30.3 times and a dividend yield of 2.1% for FY20E.

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