Tuesday, January 28, 2014

Raffles Medical - Adding capacity (CIMB)

Raffles Medical Group -
Current S$3.08
Target S$3.68
Adding capacity

Raffles Medical Group (RFMD) began 2014 on a strong footing and the latest news on its land acquisition and hospital expansion reflect better use of its cash proceeds and allay concerns about over-crowding/lack of capacity. Our FY14-15 EPS is cut by 2-4% to reflect the higher financing costs and our target price is lowered by 3% (still based on 23x CY15 P/E). The catalysts are the higher healthcare dollars from the expansion of Raffles Hospital and the successful development of integrated international hospitals in China with its JV partners. We maintain our Add rating on RFMD.


What Happened
RFMD announced that it will acquire a site adjacent to Raffles Hospital from the Singapore Land Authority for a purchase consideration of S$105m. This 1,978 sq m site has a plot ratio of 5.6 and will yield a GFA of 11,077 sq m. Provisional permission was obtained in Jul 2010 from the Urban Redevelopment Authority (URA) to increase the plot ratio on the hospital's existing land from 4.2 to 5.6, implying a GFA increase of 9,535 sq m. The combined total GFA will amount to 20,612 sq m.

What We Think
Addressing capacity limitation concerns. RFMD will use the adjacent site to expand its existing healthcare facilities' GFA to 49,217 sq m from 28,605 sq m. The new site provides RFMD with a strategic opportunity to expand the facilities and services of its flagship Raffles Hospital and to develop a comprehensive and integrated medical complex. We expect the two properties to boost RFMD's earnings in 2HFY16 onwards.

Capex of S$430m for two new projects in FY14-15. The total development cost for the hospital site is estimated to be c.S$310m (in FY14-15), while the acquisition cost for the Holland Village mall was around S$120m. The funding requirements will be satisfied via cash and likely, bank borrowings. Given RFMD's admirable balance sheet (net cash) and consistent free cash flow, this move signifies RFMD's more efficient deployment of cash. We do not think that the greater funding requirements in Singapore will hamper the group's regional expansion plan (see overleaf).

What You Should Do
The favourable healthcare consumption theme, local expansion and successful JV to develop integrated international hospitals in China are catalysts. Furthermore, the potential asset unlocking theme may eventually emerge.



Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 23/01/14

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