, Singapore

See what's driving Raffles Medical's positive outlook

Everything seems to be going right.

The future looks bright for Raffles Medical, according to research firm OSK-DMG, as the firm continues to benefit from the strong demand for healthcare services and will also receive boosts from the recent Budget 2014 initiatives.

Raffles Medical's expansion plans are also seen as putting the first in the right direction, contributing to growth from 2015 onwards.

Here's the full analysis from OSK-DMG:

RFMD booked a strong 4Q13 PATMI of SGD43.2m, boosted by a SGD20.4m gain from the Thong Sia building sale. Continuous strong demand for healthcare services and the recent 2014 Budget initiatives bodes well for the group, while upcoming expansion plans will also help revenue growth in the long run. We remain positive on RFMD and maintain our BUY call, with a SGD3.67 TP (from SGD3.20).

Core operations still strong. While Raffles Medical (RFMD)’s 4Q13 results were boosted by revaluation gains – as well as the gain on sale of its property – if excluded, RFMD’s 4Q13 EBIT would have risen by 7% y-o-y. This improved performance was also aided by operating efficiencies it achieved during the period under review.

Expansion plans places RFMD in the right direction. With continued strong demand for healthcare services in Singapore, RFMD’s planned expansion will allow the group to ride on this trend. Its hospital and clinic expansions are likely to contribute from 2016 onwards. Given RFMD’s strong balance sheet – SGD261.2m net cash as at end-FY13 – and stable cash flow generation, management is confident that it will continue paying steady dividends to shareholders. The group announced a dividend of 4.5 cents/share for FY13.

Budget initiatives favourable for RFMD. The recent 2014 Budget initiatives announced by the Government reflects the strong demand for healthcare services. With these measures, eg more citizens qualifying for the community health assist scheme (CHAS), some spillover effect to the private sector can be expected. Patient volume at general practitioner (GP) clinics are likely to increase somewhat, and additional Medisave top-ups and increased flexibility in the use of Medisave may motivate relatively more well-to-do Singaporeans to seek treatment at private healthcare providers. With a wide network of GP clinics across the island, RFMD stands to benefit from this.

Maintain BUY. Supported by an ageing population and the Government’s policies, RFMD’s outlook remains positive. Meanwhile, management said it will continue to look for opportunities to expand into China in order to grow the group’s business.

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