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Raffles Medical (RFMD SP) Summary

Core Content

Raffles Medical (RFMD SP) is a healthcare company based in Singapore, with a target price of SGD5.40, representing a +17% increase from its current share price of SGD4.62. The company has a market capitalization of USD1.9 billion and an average daily trading volume of USD2 million. Maybank maintains a "BUY" recommendation for the stock, with no change in the rating.

Main Points

Expansion and Growth Initiatives

• Singapore Expansion:
  • Raffles Hospital opened a new floor in 1Q15 with 30k sq ft of space.
  • A 17k sq ft medical centre was launched at Shaw Centre in 2Q15.
  • Emergency-care collaboration (ECC) with the government began in 2Q15.
  • A new medical centre at Holland V is expected to open in 1Q16.
  • A 222k sq ft extension of Raffles Hospital is scheduled for completion in 1Q17.
• China Expansion:
  • The 400-bed Shanghai hospital is set to open in 2Q18.
  • The joint venture was formed in May 2015, with plans first announced in September 2013.
  • The company continues to pursue the acquisition of a hospital in Shenzhen, which was first announced in February 2013.

Competitive Landscape

• New private and public hospitals pose minimal impact on Raffles Medical due to its group practice model and differentiation in services.
• Private hospitals' share of patient admissions increased in 2010-14 despite public bed supply growth.
• Singapore's focus on non-elective quaternary procedures gives it a competitive edge over regional peers like Malaysia, India, and Thailand.

Medical Tourism

• Medical tourism is a key revenue stream, with IDR depreciation easing to 2.3% YTD from 11.1-12.2% in 2013-14.
• The company's medical tourism dipped in 2013 but is expected to recover with the stabilizing SGD.
• Singapore remains a preferred destination for non-elective procedures, and growing affluence in ASEAN and Singapore is expected to boost demand for private healthcare.

Financial Performance

• Revenue is projected to grow from SGD341.0M in FY13A to SGD534.2M in FY15E, with EBITDA increasing from SGD102.6M to SGD134.0M.
• Core net profit is expected to rise from SGD60.6M to SGD93.3M.
• Core FDEPS (free dividend per share) is forecasted to increase from 10.5cts in FY13A to 15.9cts in FY15E.
• Net DPS (dividend per share) is expected to grow from 5.0cts to 7.0cts.
• The company's valuation metrics, including Core FD P/E and P/BV, are projected to decline, indicating improved earnings and cash flow.
• Net dividend yield is expected to increase from 1.1% to 1.5%.

Key Information

Valuation Metrics

• Core FD P/E: 43.9 (FY13A) to 29.0 (FY15E)
• P/BV: 5.4 (FY13A) to 3.9 (FY15E)
• EV/EBITDA: 14.1 (FY13A) to 27.3 (FY15E)
• Net debt/equity: From net cash in FY13A to 11.1% in FY15E and 4.9% in FY16E

Financial Projections

• DCF Target Price (SGD): Increased from SGD5.10 to SGD5.40 due to a higher terminal growth rate of 2.5% in Singapore.
• Terminal Value (SGD): SGD2,769.8M for Singapore operations in FY18E.
• Discounted FCFE: Total discounted FCFE is projected to be SGD2,460.7M.
• Intrinsic Value (SGD): SGD4.20 for FY15E and SGD5.40 for FY16E.

Comparison with Peers

• Raffles Medical is rated "BUY" compared to other healthcare stocks, which include "BUY," "HOLD," and "NR" (No Rating).
• The company is expected to have a higher growth rate and more favorable valuation metrics than many of its peers in the region.

Summary Table

Conclusion

Raffles Medical is positioned for growth through its expansion in Singapore and China, with a focus on high-value non-elective procedures and medical tourism. The company is expected to benefit from a stabilizing SGD and a growing demand for premium healthcare services in the region. Its financial performance and valuation metrics suggest a strong outlook, leading to a "BUY" recommendation with an updated target price of SGD5.40.