Sunday, January 26, 2014

Raffles Medical Group: Enlarging its healthcare footprint (OCBC)

Raffles Medical Group:
Fair value S$3.61
add: 12m dividend forecast S$0.045
versus: Current price S$3.09
Enlarging its healthcare footprint

Raffles Medical Group (RMG) has agreed to acquire a land site adjacent to its Raffles Hospital from the Singapore Land Authority for S$105.2m. It will be able to boost its total hospital GFA by 72% to 49,217.28 sqm upon completion, which is expected in FY16. This will allow RMG to expand its range of sub-specialty centres and its healthcare education and clinical research activities, which we view positively. Together with a recent Holland Village property purchase and development project, total capex is estimated to amount to S$430m, which RMG expects to finance with internal resources and bank borrowings. Management highlighted that its overseas expansion plans remain intact despite this development. We maintain BUY and S$3.61 fair value estimate on RMG, pegged at 29x FY14F EPS.


Acquisition of land adjacent to Raffles Hospital a sound move
Raffles Medical Group (RMG) announced that it has agreed to acquire a land site adjacent to its Raffles Hospital from the Singapore Land Authority for S$105.2m. Given its plot ratio of 5.6 times, this would yield a GFA of 11,077.36m2. Coupled with prior provisional approval from URA to extend its existing Raffles Hospital premises, this implies that RMG will be able to boost its total hospital GFA by 72% to 49,217.28m2 upon completion. Both this land and its existing hospital site have a 99-year leasehold (commenced on 1 Mar 1979). We are positive on this move given our robust view on Singapore’s healthcare market potential in the long term and also RMG’s strong track record as a medical services provider to both local and foreign patients. The estimated development cost (including land purchase and construction costs) amounts to S$310.0m and will be financed by internal resources and bank borrowings. Construction is expected to begin in 2Q14 and will take approximately 24 months.

Full-fledged hospital, but more to come
As at 30 Sep 2013, RMG was in a healthy net cash position of S$141.7m. It also received gross proceeds of S$120m in 4Q13 from the sale of its Thong Sia commercial podium, part of which was used to finance the purchase of a property in Holland Village. Total capex for these two projects is estimated to sum up to ~S$430m, of which 40% is projected to be incurred in FY14 and FY15 each, and the remaining 20% in FY16. Once completed, RMG will be able to expand its range of sub-specialty centres and also its healthcare education and clinical research activities.

Maintain BUY
Management highlighted that its overseas expansion plans remain intact despite its recent spending spree in Singapore. It is still finalising details of its two framework agreements in Shenzhen and Shanghai, China. We retain our forecasts for now as this new development will likely begin contributing only in 2H16. Maintain BUY and S$3.61 fair value estimate on RMG, pegged at 29x FY14F EPS.


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

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