STI : 3,133.74
Price Target : 12-month S$ 3.15
Land acquisition only for longterm gain
• Acquires adjacent land to existing hospital for expansion, expected completion in 2H2016
• Provides capacity headroom for longer-term expansion; limited near-term impact
• Trades at 24x FY14F PE, similar to regional peers
• Maintain HOLD, TP unchanged at S$3.15
Acquires adjacent land to hospital for expansion. Raffles Med announced that it has secured a 1.98k-sqm adjacent site to Raffles Hospital for S$105.2m. The site has a gross floor area (GFA) of 11,077.36 sqm (119.2k sq ft), and will have a coterminous lease period (99 years, from 1 Mar 1979) with the existing hospital site. Taken together with the earlier approved plot ratio increase for its existing hospital site, the total expansion will increase Raffles Hospital’s GFA by c.72% to 529.8k sq ft. The estimated cost of investment is S$310m, equating to about S$1.4k psf ppr, with a 64-year remaining lease term.
Positive for the long term, but minimal near-term impact. While we view this development positively for the Group in the long term, the impact on near- and mediumterm earnings is negligible. Raffles Med will fund this investment via internal resources, given its huge cash hoard, estimated at S$258m as of Dec 2013. While capex will step up with the Group’s expansion plans, we still believe its dividend payout is likely to remain steady at c.40%, equating to a 1.6%-1.9% yield (FY13F-15F).
Maintain HOLD, TP: S$3.15. We retain our forecasts as the expansion development plans is expected to be ready only in the latter half of 2016, with gradual ramp-up from thereon. The counter is currently trading at c.24x/21x FY14F/15F PE, which is similar to regional peers’ average. Our TP stays at S$3.15, based on 24x FY14F earnings. Maintain HOLD.
Publish date: 24/01/14