Raffles Medical looks to China partnerships for growth

Currently exploring collaborations on the Mainland.

OCBC Investment Research notes that Raffles Medical Group is negotiating collaborations to build and operate integrated international hospitals with a couple of Mainland companies, namely Shanghai Binjiang International Tourism Development Co. Ltd and China Merchants Shekou Industrial Zone.

The research firm said Raffles Medical Group is right to be exploring these business expansion opportunities in China, but warned that the deals may snag on regulatory uncertainties.

Here's the complete analysis from OCBC:

Exploring integrated hospital development in Shanghai. Raffles Medical Group (RMG) recently announced that it has entered into a framework agreement with Shanghai Binjiang International Tourism Development Co. Ltd, a subsidiary of Shanghai Lujiazui Co. Ltd, to collaborate on the proposed development of an integrated international hospital in the central business zone of Qiantan, Pudong New District in Shanghai, China. The proposed hospital development is expected to have more than 300 beds and is aimed at providing highend medical services to local residents as well as international patients. We estimate capex for this hospital to amount to ~S$200-250m and to be financed by internal resources and debt. Negotiations on the finalisation of terms will likely take place over a timeframe of six months to a year, while relevant regulatory approval is also required.

Follows up on possible hospital project in Shenzhen. Recall that RMG is also negotiating on a proposed collaboration with China Merchants Shekou Industrial Zone to develop an integrated international hospital in Shenzhen, China (non-binding Letter of Intent signed). Should these negotiations be successful, it would allow RMG to expand its operations overseas.

Maintain BUY. We are positive on RMG’s decision to explore business expansion opportunities in China given the immense growth prospects, although regulatory uncertainties would likely be the largest risk, in our view. According to a recent report by the Boston Consulting Group, the Chinese hospital market recorded a 18% CAGR in revenue from 2004 to CNY1.25t in 2011. Private hospitals still only form ~9% of China’s total healthcare volume in 2011, but we expect this figure to increase going forward, driven by government initiatives and rising affluence.

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