Here's what Raffles Medical's expansion delay means

Revenue likely to dip 2.7%.

According to OCBC, the delay over new Specialist Centre could shroud RMG earnings visibility. Raffles Medical Group (RMG) is seeking to expand its capacity with a new Specialist Centre at 30 Bideford Road (~42,668 sf).

However, the firm believes that there is still uncertainty over the possible commencement date of operations as the authorities had rejected its first application in Oct last year.

OCBC adopts a more conservative approach, and assume that the delay in operations would stretch until late 2013 or early 2014 (previously 1H13).

Here's more from OCBC:

We believe that there could also be a negative flow-through effect to its Raffles Hospital as this new Specialist Centre was intended to act as an additional platform for referrals for follow-up diagnostic and treatment services.

We thus trim our FY13F revenue and EPS estimates by 2.7% and 5.0%, respectively.

RMG is currently awaiting the results of its Hong Kong land tender bid for a private hospital development (submitted on 27 Jul 2012), with results expected to be announced in early 2013.

Regardless of the outcome of the tender results, we opine that there would be no material near-term financial impact on RMG, given that this is a greenfield project and capex would take place in stages.

We expect this project to be financed by RMG’s strong operating cashflow generation and debt.

RMG’s share price has performed commendably since we upgraded the stock to a ‘Buy’ on 10 Oct 2012, jumping 18.2% against the STI’s 4.7% gain over the same period.

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