OCBC names Raffles Medical as top healthcare pick for 2014
Robust growth prospects and double-digit EPS.
OCBC Investment Research chose Raffles Medical as its top healthcare pick for next year, citing the hospital and clinic group's solid track record in revenu and PATMI.
Given its capable management team, robust growth prospects and strong brand equity, OCBC predicts the company's EPS to reach a CAGR of 12.7% from FY12-14F.
Here's the complete analysis from OCBC:
Quality healthcare play. Since Raffles Medical Group (RMG) was co-founded in 1976 by its current Executive Chairman Dr. Loo Choon Yong and his partner Dr. Alfred Loh, it has come a long way in contributing to the healthcare scene of Singapore. Starting out with just two clinics, RMG now runs a wide network of clinics and a full fledged 200-beds hospital offering a diverse spectrum of medical services. It has established a solid track record, as illustrated by the 13.1% and 17.8% CAGR in its revenue and core PATMI from 2007 to 2012, respectively. The group also managed to deliver positive core earnings growth during the last financial crisis in 2008 and 2009 (35.0% and 18.2%, respectively).
Looking for expansion locally and overseas. RMG has earmarked plans to scale up its operations both locally and abroad. It is currently finalising plans for its Raffles Hospital extension, which will see a boost in its gross floor space from the present 307,875 sf to 410,283 sf when completed (expected in late 2015 or early 2016). Meanwhile, management also signed a Letter of Intent and framework agreement in Feb and Sep this year for the proposed development of an integrated international hospital in Shenzhen (>200 beds) and Shanghai (>300 beds), respectively. This would allow RMG to tap on the growing Chinese healthcare market. We estimate total capex for these three projects to amount to S$480-520m, and funded by internal resources and debt. As at 30 Sep 2013, RMG was in a healthy net cash position of S$141.7m. It will receive gross proceeds of S$120m in 4Q13 from the sale of its Thong Sia commercial podium.
Maintain BUY. We like RMG for its capable management team, robust growth prospects and strong brand equity. Our core EPS projections imply a CAGR of 12.7% from FY12-14F. Maintain BUY and S$3.61 fair value estimate on RMG, pegged to 29x FY14F EPS. Key risks to our estimates include fiercer-than-expected competitive pressures and continued weakening of the IDR.