healthcare beyond borders and beyond 40 year milestone div...

Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE) MCI (P) 118/10/2015 Ref. No.: SG2016_0014

Raffles Medical Group Ltd (RMG)

Healthcare Beyond Borders and Beyond 40 Year Milestone SINGAPORE | HEALTHCARE | UPDATE

Expansion plan in domestics and oversea on track with additional capacity and specialist services to absorb growing global demand.

Riding on regional reform drives would give RMG a good head start in gaining foothold in the untapped private healthcare sector. Supportive government policies coupled with its know-how give RMG an upper hand.

Integration across border, including effective use of information technology and improving processes such as bulk purchasing of medical supplies.

We upgrade to Buy rating with TP of S$4.74 on strong positive growth outlook. Investment Merits Strong brand name – one of the largest private healthcare services providers, helmed by strong management team and clinical leaders. It has established 40 years of track record and history in healthcare services.

Offers a wide range of products and services

(a) Integrated care from primary to tertiary care, complemented with consumer medical products and health insurance, RMG has the breadth and length to achieve economies of scale.

(b) Enable RMG to weather through challenging economic landscape. The management shared that it would focus on non-discretionary services (e.g. general practicioners, emergency healthcare, maintenance drugs for chronic conditions), and advocate elective surgery (while patients and doctors could prepare themselves) in current slowdown.

Well established network – wide network of clinics domestically, while reaching out to customers within the region as well as Middle East. Notwithstanding the 11 representative offices, the recent development extend RMG’s medical facilities into ten additional cities, which could translate to a larger patient base and heighten its role in regional healthcare system.

Track record of growing dividend, supported by its strong operating cash flow generation and intact growth story.

Figure 1: Peer Comparison Table

ComparablesMkt Cap Ent Val EV/EBITDA Div Yield

BB Ticker Company FYE (S$m) (S$m) FY14/15e FY15/16e FY14/15e FY15/16e FY14/15e FY14/15e FY14/15e

RFMD SP RAFFLES MEDICAL Dec 2,282 2,216 32.3 28.6 3.9 3.5 23.6 1.4 12.3

29.1 24.5 4.9 4.4 15.5 2.4 19.6

IHH SP IHH HEALTHCARE B Dec 17,187 19,102 55.4 45.2 2.6 2.5 26.3 0.5 4.5

RHC AU RAMSAY HEALTH Jun 12,766 15,942 27.3 23.9 6.4 5.7 12.4 1.9 23.7

RYM NZ RYMAN HEALTHCARE Mar 3,833 4,282 26.4 22.8 3.3 2.9 18.8 1.9 14.6

PRY AU PRIMARY HEALTH Jun 1,277 2,479 10.9 11.4 0.5 0.5 6.4 6.5 4.6

KPJ MK KPJ HEALTHCARE Dec 1,490 1,864 30.6 27.8 3.3 3.1 15.8 1.6 11.1

TKMED SP TALKMED GROUP LT Dec 647 609 17.0 16.7 10.9 9.9 13.5 4.1 70.0

QNM SP Q&M DENTAL GROUP Dec 553 581 46.7 33.3 5.4 5.0 24.5 1.1 13.0

ISEC SP ISEC HEALTHCARE Dec 110 83 20.5 15.0 N/A N/A 9.5 1.8 10.8

Source: Bloomberg, Phillip Securities Research (Singapore) Estimates

ROE

Peers' average:

P/E P/B

15 January 2016

BUY (UPGRADE)CLOSING PRICE

FORECAST DIV

TARGET PRICE

TOTAL RETURN

COMPANY DATA

O/S SHARES (M N) : 575

M ARKET CAP (USD mn / SGD mn) : 1586.2 / 2282.5

52 - WK HI/LO (SGD) : 4.99 / 3.82

3M Average Daily T/O (mn) : 0.62

MAJOR SHAREHOLDERS (%)

38.2%

10.0%

4.9%

4.9%

3.2%

PRICE PERFORMANCE (%)

1M T H 3 M T H 1Y R

COM PANY (7.1) (11.5) 3.4

STI RETURN (5.8) (11.0) (17.7)

PRICE VS. STI

Source: B loomberg, PSR

KEY FINANCIALS

SGD M N F Y 13 F Y 14 F Y 15e F Y 16 e

Revenue 341 375 410 466

EBITDA 78 87 88 103

NPAT (adj.) 61 65 65 76

EPS (adj.) 0.11 0.12 0.11 0.13

PER, x (adj.) 28.1 33.7 34.7 30.3

P /BV, x 3.6 4.1 3.8 3.6

DPS (S cts) 5.00 5.50 6.00 6.50

Div Yield, % 1.6% 1.4% 1.5% 1.6%

ROE, % 14.1% 12.8% 11.9% 12.6%

Source: Company Data, PSR est.

VALUATION METHOD

DCF (WACC: 7.0%; terminal g: 3.0%)

Soh Lin Sin (+65 6212 1847)

[email protected]

SGD 4.74

SGD 3.97

SGD 0.06

20.9%

RAFFLES MEDICAL HOLDINGS

CHOON YONG LOO

ABERDEEN

FIL LIMITED

S&D HOLDINGS PTE LTD

2.70

3.20

3.70

4.20

4.70

5.20

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16

RFMD SP Equity FSSTI Index

Page | 2 | PHILLIP SECURITIES RESEARCH (SINGAPORE)

RAFFLES MEDICAL GROUP LTD UPDATE

Investment thesis for healthcare is still intact and relevant

A multi-billion-dollar industry and still increasing – Demand for healthcare services is expected to rise substantially, against the background of an aging population, coupled with changing disease patterns arising from lifestyles and diets. Growing middle-income class and affluent consumers within the region would also increase demand for private healthcare services. Supportive demand trend would inspire more spending on healthcare. Within Singapore only, public healthcare spending is expected to rise from over S$9 billion to over S$13 billion in 2020.

Asia, a magnet for medical tourists – In particular, Thailand, Malaysia, and Singapore in the Southeast Asia region, are touting for their economical world class standard healthcare facility and services, with secure and cultural environment. In addition, availability of specialized medical treatment coupled with international accolades and ranking in the global platform are strengthening the regions’ medical tourism identity. Singapore has 21 Joint Commission International (JCI) accredited hospitals and health centres, that compares to Thailand’s 50 and Malaysia’s 13 organizations.

Tapping on Asia’s healthcare system reboot – To achieve efficient, accessible and sustainable healthcare, governments pledged to step up on their healthcare reforms. More opening up and policies to build an investment-friendly business climate are likely to continue.

(a) SG introducing more Public-Private partnership to fill the gap between the imbalance demand and supply.

(b) China expediting its reforms via i) increasing mobility of healthcare resources, ii) easing rules on private ownership, and iii) relaxing basic medical social insurance rules.

(c) Japan regulating medical fees towards affordable healthcare and transparency in pricing. The recent bi-annual medical fees review in Dec-15 has raised medical services fees by 0.49% to increase the wages for care givers, while official drug prices will be lowered by 1.33%.

(d) Other emerging markets in Indochina region, e.g. Vietnam and Cambodia, remain attractive as i) advanced healthcare remain very limited, and ii) expanding universal health coverage and healthcare funding.

Healthcare a long-term play – Healthcare is a basic necessity for every individual. Come rain or shine, and especially in a rising health awareness environment, individual would still make trips for health advices, making it a defensive sector.

Investment Risks Growing competition, domestically as well as globally Meek macro outlook and flagging medical tourism Margin compression due to increasing operating costs, in particular, higher labor cost

and government’s push for affordable healthcare Significant regulatory changes Execution risks in expansion and renovation plan Attract and retain skilled workforce amid medical talent crunch

Investment Actions With the change of analyst, we upgrade to Buy rating with TP of S$4.74 on strong positive growth outlook.



RMG’s Recent Transformation: 2015 and Beyond

1) Domestic expansion: Enhancing market share

Facelift at RafflesHospital to house more specialist centres and beds (a) Conversion of a previously leased space to specialist centres – freed up 34k sqft area

for expansion and refurbishment of ten centres (Surgery, ENT, Heart, Cancer, Children’s, Urology, Orthopaedics, Chinese Medicine, RafflesMedical@RH and Emergency Department).

(b) 20-storey extension building with two basements – supplying an additional 220k sqft or 72% floor area to expand its range of specialist centres, clinical research activities and training ground for its healthcare staff. It would also free up space for additional 70-75% beds.

17.5k sqft one-stop multidisciplinary centre at Shaw Centre offers family medicine, health screening, dental, specialist and traditional Chinese medicine services in one convenient location.

The acquired property at Holland V is being redeveloped into a 5-storey commercial building which would yield c. 63k sqft: i) c. 9k sqft is set aside for medical space (providing medical and specialist services); and ii) the remaining commercial space will be leased to DBS and tenants offering specialty lifestyle, F&B and retail services.

New clinic and ongoing renovation works in existing clinics to meet increasing service demand and to serve its patients better.

Figure 2: RMG’s milestone and timeline for local projects

RafflesHospital conversion to

specialist centres

RafflesMedical Centre Orchard @ Shaw Centre

RafflesMedical new clinic @

Rivervale Mall

RafflesHospital @ Holland V

RafflesHospital extension

1H15 Jun-15 Sep-15 1Q16 1H17

Continuous upgrading of existing RafflesMedical clinics

2) Overseas expansion: Entering unchartered waters

Expanding overseas helps diversifying RMG’s business risks arising from the flagging tourism sector as it lower its reliance on medical tourism. In addition, RMG could ride on the regional healthcare reforms and gain competitive advantage.

The Raffles Japanese Clinic & Socion Healthcare Management Ltd JV marks its 1st foray into operating clinical facilities in Japan. The clinic is strategically located in CBD area and offers a range of healthcare services, including family medicine, travel medicine, specialists (dermatology & aesthetics, TCM), and health-screening services.

Acquisition of International SOS (MC Holdings) Pte Ltd, which is a provider of quality and comprehensive clinical care of ten clinics (six in China, three in Vietnam and one in Cambodia), helps to level RMG’s playing field. The ten clinics will be operated and branded under the Group. Besides continue to serve International SOS member clients, RMG also aims to expand the patient base of this network of clinics to the general public and corporate clients, both local and foreign.

The Shanghai New Bund International Hospital Project is the first foreign-local joint venture in Shanghai. The international hospital has a maximum capacity of 400-beds (to start with 100 beds first) and will be offering a full suite of services to local, expatriate,



regional and international patients.

With this development, RMG will be present in these 13 cities: Singapore, Beijing, Shanghai, Hong Kong, Shenzhen, Nanjing, Tianjin, Dalian, Osaka, Hanoi, Ho Chi Minh City, Vung Tau, and Phnom Penh.

Momentum unlikely to stop. RMG has previously signed a Letter of Intent with China Merchants in Feb-13 to build a private hospital with more than 200 beds in Shenzhen. The proposed hospital is expected to cater quality medical and healthcare services to the foreigners and local residents in the Pearl River Delta region. We also expect the Group to cast a larger shadow in China, particularly in Shanghai, where a medical centre and soon a hospital present in.

Figure 3: RMG’s milestone and timeline for overseas projects

Raffles Japanese Clinic

& Socion Healthcare

Management Ltd JV @ Herbis

Osaka, Kita-ku

Acquisition of International

SOS (MC Holdings) Pte

Ltd

More medical centres in SH?

Shanghai New Bund

International Hospital Project

Shenzhen hospital?

Sep-15 Oct-15 2016-17 1H18

3) Win-Win-Win initiatives: Three birds, one stone

RafflesHospital @ Emergency Care Collaboration with the MOH (a) Marked the beginning of Private-Public partnership. (b) These initiatives would benefit the Group, the public sector, as well as public hospital

patrons: i) helps to relieve pressure on public hospitals; ii) emergency inpatients and specialist outpatients could now receive medical attention at subsidized rates with shorter wait times; and iii) potential higher conversion rate (from outpatient to inpatient), which could translates to higher profitability through increased out-of-pocket spending.

Joins the Mayo Clinic Care Network (a) The Group is the first in Asia to join the Mayo Clinic Care Network. (b) As part of this network, the Group’s physicians now have access to the latest Mayo

Clinic knowledge to complement their expertise. Through information-sharing tools and services, the Group will be able to treat patients with complex medical conditions.

RafflesMedical and RafflesDental will also continue to benefit from the government-initiated Community Health Assist Scheme (CHAS), Pioneer Generation (PG) package and the Flexi-Medisave scheme.

These strategic partnerships could increase satisfied patient pool and build future brand loyalty.

Financial Highlights

1) Revenue, Earnings and Margins

Sluggish medical tourism in Singapore is likely to continue in 2016. Growth in clients is most likely to be driven by local patients. Nonetheless, the new hospitals in SG and CN should prop up its topline in 2016 and 2018, respectively.



Figure 4: Revenue growth

Source: Company, Phillip Securities Research (Singapore) estimates

9.4

14.1 14.2

9.4 9.9 9.5

13.5

0

100

200

300

400

500

FY10 FY11 FY12 FY13 FY14 FY15e FY16e

(mn)Revenue (S$mn) YoY Growth (%)

Figure 5: Segmental revenue growth

Source: Company, Phillip Securities Research (Singapore)

0

10

20


(%)Healthcare Services YoY (%) Hospital Services YoY (%)

Figure 6: Earnings growth


42 48

53

61 65 65

76

0

4

8

12

16


(%)PATMI, adj (S$mn) YoY Growth (%)

Figure 7: Profit margins


23.8 23.7

22.6 23.0 23.2

21.4 22.2

17.7 17.7 17.0

17.8 17.3

15.8 16.3

0

30

60

90


(mn) PATMI, adj (S$mn) EBITDA margin (%) Net margin (%)

In 2014, 5-yr revenue CAGR stood at 11.38% and the Group targets to sustain such CAGR rate New medical space domestically and abroad should help to lift its topline this year FY15F PATMI weighed by higher operating costs, which is mainly due to increased manpower costs arising from i) annual stage wage increment, and ii) preparing manpower for new clinics before opening

Expects staff costs % of revenue to normalize in 2016 as the RH@Holland V opens



2) Costs

Staff costs uptrend to persist due to talent crunch (a) Continue to recruit in tandem with its continual expansion plan (b) Notable shortage of nurses and doctors globally

To attract and retain staff, particularly nursing staff, private healthcare players would match ancillary pay for nurses to public sector’s.

Industry players also reach out to foreign talent to fill the gap. The Management has also shared that it has not hit the stipulated quota yet and there is still room to bring in foreign doctors and nurses.

(c) The Group shared its intention to start a training facility in its China JV hospital, to grow and groom a supply of in-house trained medical staff.

Higher depreciation due to i) conversion of a previously leased space to specialist centres, ii) acquisition of properties, and iii) purchase of medical equipment.

Operating lease expenses due to more new leases resulting from the expansion of clinics.

3) CAPEX

For its expansion in Singapore, the remaining capital commitment of c. S$180mn, will be spread across the next 1.5 years and is expected to be funded internally, supported by its strong operating cash flows and healthy cash position. (a) As of 30 Sep-15, the Group has S$90mn in cash. (b) Taking reference from the group’s 3Q15 operating cash flows at S$16mn, we think that

it has the capacity to generate sufficient cash to fund the remaining S$90mn.

Meanwhile, the hospital in Shanghai is expected to be funded through equity funds (30%) and debt issuance (70%).

4) Dividend

We expect the Group to continue its track record in growing and paying its dividend. Figure 8: Dividends payout


3.5 4.0 4.5 5.0 5.5 6.0 6.5

40 42 43

32

45 50

48

0

5

10

15

20


(S cts)DPS (S cts) EPS (S cts) Payout (%)

Valuation RMG currently trades at a 32.0x FY15E PER, which is 10% higher compared to its regional peers’ at 29.1x. The higher PER accounts for RMG’s 1) brand equity, 2) integrated healthcare services and products provider, and 3) well established network. We expect the FY16E PER to rise to 28.3x, reflecting a higher premium (16% higher) compared to its peers, as it expand its footprints across the region.

We upgraded RMG to a “Buy” rating with a target price of S$4.74 based on discounted cash flow (DCF) methodology. This implies an upside of 20.9% (with dividends) from its last closing price.



Figure 9: DCF Model FYE Dec FY14 FY15e FY16e FY17e FY18e FY19e Terminal

Operating profits 77,327 77,806 90,720 98,262 115,265 137,044

Less: interest income

Less: tax (12,671) (12,750) (14,866) (16,102) (18,888) (22,457)

Plus: Depreciation & amortisation 9,646 10,076 12,472 18,265 18,265 18,265

Less: Capex, net (17,611) (101,485) (130,861) (72,376) (14,249) (16,513)

Adjust for: Change in w orking capital 13,144 4,874 3,941 5,946 5,500 6,798

Free cash flows 69,835 (21,479) (38,594) 33,995 105,893 123,137 3,170,776

WACC (%) 7.0

Terminal grow th rate (%) 3.0

Firm value (SG$ m) 2,605

Adjust for: Net cash/(debt), SG$ m 121

Equity value (S$ m) 2,726

Number of shares (m) 575

Fair value (SG$/share) 4.74

Cross-rate 1.00

Fair value (S$/share) 4.74

Tax adjusted long-term risk free rate (%) 3.0

Long-term debt f inancing premium (%) 1.1

Cost of debt (%) 4.1

Tax shield on debt (%) 17.0

After-tax cost of debt (%) 3.4

Beta (x) 0.67

Market risk premium (%) 5.9

Cost of equity (%) 7.0

Target long-term net-debt-to-equity ratio (%) 0

WACC 7.0




Appendix: Healthcare System in Asia

Overall healthcare trend

Certain demographic and economic factors are tailwind for healthcare providers (a) increasing life-style related diseases; (b) rising affluence; (c) growing health awareness; (d) greater access to healthcare services; (e) aging population; (f) longer life expectancy; and (g) growing population (Asia’s population is projected to grow by nearly 20% from 4.39bn

in 2015 to 5.27bn in 2050).

Increasing call for affordable healthcare, cost reduction and transparency in pricing (a) Transition to value-based care (VBC) is inevitable, and the idea is concerted

throughout the entire supply chain. (b) Both healthcare funding and insurance coverage are undergoing significant

transformation underpinned by governments’ policies. More consumers are gaining health insurance coverage, which could also benefit the private healthcare as it translate to higher out-of-pocket expenses.

(c) As healthcare reform kicks into high gear, facing margin compression, healthcare providers need to balance between quality delivery and costs involved. There will be more value chain consolidation as companies attempt to achieve scale by offering comprehensive and integrated multidisciplinary care.

Digitalizing healthcare via cloud technologies, and high tech sensors and robotic technologies (a) Utilizing big data to streamline health care operations could also be a key to increasing

efficiency and reducing costs. (b) Medical facilities, as well as nursing care providers, can share/access patients’ medical

records and eliminate unnecessary testing and/or medications.

Welcoming foreign investors to fill the void. Opening up private healthcare sector to majority or full foreign ownership, providing favourable investment landscape could close the gap and ease the overcrowded public healthcare.

Patients beyond borders (a) Booming global medical tourism industry within the region. (b) Some of the push and pull factors for patients to seek healthcare overseas –

competitive costs for high-quality healthcare facility and services, secure and cultural environment, strategic and accessible locations, specialized medical treatments that are not readily available in their county, long waiting lists at home, privacy from friends and family, etc.

Healthcare sector within the region remains attractive as the sector in most of the countries are still in early development stage, with significant imbalance between demand and supply.

Singapore: More state-backed healthcare providers, expect keener competition

More public healthcare providers on the way. Ministry of Health (MOH) continues to build capacity for all levels of healthcare facilities and services. Singapore 2015 Budget has outlined an expansion plan for hospitals, specialist centres, polyclinics, and nursing homes at an unprecedented pace. (a) Launched three new hospitals (Ng Teng Fong General Hospital, Jurong Community

Hospitals and Yishun Community Hospitals) in 2015. (b) The Sengkang General Hospital and Sengkang Community Hospital are scheduled to

open by 2018, while the Outram Community Hospital is scheduled to open by 2020.



(c) Upgrading of Alexandra Hospital would also contribute to higher capacity to accommodate Singaporeans needs. (d) More polyclinics, home and community care services in the pipeline.

Expects continued government support in healthcare sector to push for affordable healthcare. However, these initiatives could induce patients and doctors to abuse the healthcare services. Figure 10: Singaporeans are living longer and staying healthy for more years

75

76

77

78

79

80

81

82

83

90 95 00 05 10 15

SG: Life Expectancy

Source: CEIC, PSR est.

According to MOH, SG’s dependency ratio (number of working adults supporting one senior aged 65 or older) is expected to come down to 2.1 adults to one senior by 2030 from current’s 4.8. Senior citizens remain active and independent for longer – financially able to support own well-being.

Figure 11: An integrated care model

Singapore Healthcare System

Public

Alexandra Health

anchored by Khoo Teck

Puat Hospital in the North

Eastern Health

Alliance

anchored by Changi General

Hospital in the East

National Healthcare

Group

anchored by Tan Tock

Seng Hospital in the Central

National University

Health System

anchored by National

University Hospital

Jurong Health

anchored by Ng Teng

Fong General

Hospital in the West

SingHealth

anchored by Singapore

General Hospital

Private

Large Private Healthcare

Services Providers

AsiaMedic

Johns Hopkins Singapore

International Medical Centre

Pacific Healthcare

Parkway Group

Raffles Medical Group

Thomson Medical Centre

16 public hospitals and specialty centres

Absorbing 80% of total demand for hospital care

10 private hospitals

Absorbing 20% of total demand for hospital care

18 polyclinics

Absorbing 20% of primary healthcare needs

~1,500 private medical clinics

Absorbing 80% of primary healthcare needs

Source: Ministry of Health, PSR



Figure 12: In 2014, public sector is the predominant provider in the tertiary care sector, where medical expenses are higher

Public Hospital

75%

Private Hospital

25%

Hospital Admissions


Figure 13: Fiscal spending is expected to increase (from 1.9% of GDP as of 2014) to an average of 19% of GDP by 2020

1.37 1.37 1.37 1.37 1.37 1.37 1.37 1.37 1.37 1.37 1.37 1.37 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52

1.81 1.81 1.81 1.81 1.81 1.81 1.81 1.81 1.81 1.81 1.81 1.81

2.57 2.57 2.57 2.57 2.57 2.57 2.57 2.57 2.57 2.57 2.57 2.57 2.59 2.59 2.59 2.59 2.59 2.59 2.59 2.59 2.59 2.59 2.59 2.59 2.71 2.71 2.71 2.71 2.71 2.71 2.71 2.71 2.71 2.71 2.71 2.71 2.74 2.74 2.74 2.74 2.74 2.74 2.74 2.74 2.74 2.74 2.74 2.74

0.0

0.5

1.0

1.5

2.0

2.5

3.0

10 11 12 13 14

SG: Health Expenditure % GDP

Public Health Expenditure % of GDP

Private Health Expenditure % of GDP


China: The world’s second largest healthcare spenders but with flawed system

Flawed system with uneven distribution of healthcare personnel. Vast disparities (in terms of quality and availability) between urban and rural healthcare services. Rural areas may have reasonable primary care infrastructure but lacks the comprehensive tertiary care services.

On the other hand, notwithstanding the higher medical cost, urban public hospitals tend to be overcrowded even with higher doctor concentration.

Reforms with positive impact on healthcare (a) Higher demand from increasing population. End of the three-decades-old one-child

policy and adoption of the two-child policy in 2016 – with Guangzhou being the first city to implement this measure.

(b) Medical-services price reform which promotes transparency in pricing but also eliminate drug markups. Most hospitals have significant proportionate share of drug sales in their operating profits. The reform would cut off their reliance on drug revenues to fund operations and increase competitiveness.

(c) Favorable policies enhance private hospital’s competitiveness and could lure more private investment into the sector, e.g. o Healthcare privatization drive which allows foreign investors to wholly own

hospitals, either by acquisition or greenfield (pilot project in in seven cities and



provinces in Aug-14) has drawn interest of foreign hospital operators such as Raffles Medical Group Ltd, IHH Healthcare Bhd and Chindex International Inc.

o Government support by offering tax-favoured treatment, streamlining the approval process for establishing a hospital, allowing private players access to diversified funding sources, and cutting red tape to encourage free flow of talents among different medical agencies.

(d) Allowed greater freedoms for doctors – allowing i) local graduated doctors to work more freely in the private sector, and ii) healthcare workers to work concurrently at public and private hospitals. This will enable foreign operators to get more into primary care and the mainstream market.

(e) Relaxed basic medical social insurance rules could also help to ease the pressure off public hospitals, increasing outpatients for private clinics and hospitals.

Expect further supporting policies to deepen the reform, encourage private and foreign investment in the sector, as well as to balance the interests along the healthcare value chain.

Japan: A hyper-aging society with majority of healthcare spending funded by government

Growing preference for in-home medical care – stronger preference from the elderly population.

Universal healthcare insurance system (where patient with pre-existing condition cannot be denied coverage) enables low out-of-pocket expenses at the expense of fiscal budget and availability. However, cheap healthcare costs also leading to low risk patients over flooding the healthcare system.

Impending consumption tax hike, which is planned to take place in April 2017, raising from 8% to 10%. Nonetheless, medical fees are regulated by government and are only revised every bi-annually. The recent review on Dec-15 for fiscal 2016 budget has raised medical services fees by 0.49% to increase the wages for care givers, while official drug prices will be lowered by 1.33%.

Medical tourism gaining traction amid government support and the weaker yen as a tailwind.

ASEAN ex-Singapore: Closing the standard gaps

a. Rising stars: Thailand, Malaysia and Philippines Urbanization and rapid expansion of healthcare sector presents an attractive

investment landscape to investors, especially from abroad. Developed healthcare systems, comprehensive healthcare services and infrastructures compared to their ASEAN peers, have earn themselves a share of the lucrative medical tourism pie.

Improving standards as well as stronger Singapore dollar will further test the price premiums in Singapore, thus giving these rising stars advantages.

b. The less fortunate: Indonesia and Vietnam Low levels of spending on healthcare, leading to limited and underdeveloped public

healthcare system. Thus, richer Indonesians and Vietnamese, having to pay for private healthcare visits out of their pockets would seek care abroad, mainly to Malaysia and Singapore.

At the beginning of 2014, both the Indonesian and Vietnamese governments have introduced a universal health coverage, to make healthcare more affordable to the public. This initiative is targeting the poor and near-poor citizens, the more affluent patients, which are the focus group of RMG, would less likely to be affected.



Financials

Income Statement Balance Sheet

Y/E Dec, SGD mn FY12 FY13 FY14 FY15e FY16e Y/E Dec, SGD mn FY12 FY13 FY14 FY15e FY16e

Revenue 312 341 375 410 466 ASSETS

Operating expenses (241) (263) (288) (322) (363) PPE 154 154 228 320 438

EBITDA 70 78 87 88 103 Intangibles 0 0 0 0 0

Depreciation & Amortisation (8) (8) (10) (10) (12) Investment properties 195 100 228 228 228

EBIT 62 70 77 78 91 Others 0 0 3 3 3

Associates & JVs 0 0 0 0 0 Total non-current assets 349 254 459 551 669

Net Finance (Expense)/Inc 0 1 1 1 1 Trade & other receivables 38 44 37 40 46

Other i tems 4 24 3 3 3 Cash balance 102 266 150 128 89

PBT 67 95 81 82 95 Others 5 9 9 10 11

Tax (9) (10) (13) (13) (16) Total current assets 146 319 196 178 146

PAT 57 85 68 68 79 Total Assets 495 573 655 729 815

Minori ty interest (0) (0) (0) (0) (0)

Net Income, reported 57 85 68 68 79 LIABILITIES

Net Income, adj. 53 61 65 65 76 Short-term debt 20 5 6 6 6

Trade and other payables 66 73 74 84 95

Others 17 20 24 24 24

Total current liabilities 104 98 105 115 125

Long-term debt 0 0 0 0 0

Per share data Others 2 2 10 10 10

Y/E Dec, SG cents FY12 FY13 FY14 FY15e FY16e Total non-current liabilities 2 2 10 10 10

EPS, reported 10.53 15.43 12.09 11.96 13.62

EPS, adj. 9.80 11.02 11.55 11.43 13.10 EQUITY

DPS 4.50 5.00 5.50 6.00 6.50 Minori ty interest 1 1 1 2 2

BVPS 71.29 85.31 95.50 105.05 116.06 Shareholder Equity 388 473 539 602 678

Cash Flows Valuation Ratios

Y/E Dec, SGD mn FY12 FY13 FY14 FY15e FY16e Y/E Dec, SGD mn FY12 FY13 FY14 FY15e FY16e

CFO P/E (X), adj. 26.7 28.1 33.7 34.7 30.3

PBT 67 95 81 82 95 P/B (X) 3.7 3.6 4.1 3.8 3.4

Adjustments 6 (14) 9 9 12 EV/EBITDA (X) 19.1 18.6 23.6 24.6 21.3

WC changes 6 0 13 5 4 Dividend Yield (%) 1.7% 1.6% 1.4% 1.5% 1.6%

Cash generated from ops 79 82 103 96 110 Growth & Margins (%)

Taxes pa id, others (9) (10) (10) (13) (16) Growth

Cashflow from ops 70 71 93 82 95 Revenue 14.2% 9.4% 9.9% 9.5% 13.5%

CFI EBITDA 8.9% 11.4% 11.1% 1.0% 17.4%

CAPEX, net (10) (8) (18) (101) (131) EBIT 8.9% 12.2% 10.4% 0.6% 16.6%

Acquis i tion, others (1) 119 (188) 1 1 Net Income, adj. 9.7% 14.5% 6.7% 0.6% 16.6%

Cashflow from investing (10) 111 (206) (100) (130) Margins

CFF EBITDA margin 22.6% 23.0% 23.2% 21.4% 22.2%

Share i ssuance 4 6 8 9 10 EBIT margin 20.0% 20.5% 20.6% 19.0% 19.5%

Loans , net of repayments (1) (15) 1 0 0 Net Profi t Margin 17.0% 17.8% 17.3% 15.8% 16.3%

Dividends (9) (10) (12) (13) (13) Key Ratios

Others (0) (0) (0) 0 0 ROE (%) 14.6% 14.1% 12.8% 11.9% 12.3%

Cashflow from financing (6) (19) (3) (4) (3) ROA (%) 11.5% 11.3% 10.5% 9.8% 10.2%

Effects of exchange rates (0) 0 0 0 0

Net change in cash 53 163 (116) (23) (39) Interest coverage (X) 7.9 8.5 8.0 7.7 7.3

CCE, end 102 266 150 128 89 Net gearing (X) Net cashNet cashNet cashNet cashNet cash

Source: Company, Phi l l ip Securi ties Research (Singapore) Estimates

*Forward multiples and yields are based on current market price; historical multiples and yields are based on historical market price.



Total Returns Recommendation Rating

> +20% Buy 1

+5% to +20% Accumulate 2

-5% to +5% Neutra l 3

-5% to -20% Reduce 4

<-20% Sel l 5

Ratings History

PSR Rating System

Remarks

We do not base our recommendations entirely on the above quanti tative

return bands . We cons ider qual i tative factors l ike (but not l imited to) a s tock's

ri sk reward profi le, market sentiment, recent rate of share price appreciation,

presence or absence of s tock price catalysts , and speculative undertones

surrounding the s tock, before making our fina l recommendation

2.40

2.90

3.40

3.90

4.40

4.90

5.40

Jan-14

Ap

r-14

Jul-14

Oct-14

Jan-15

Ap

r-15

Jul-15

Oct-15

Jan-16

Ap

r-16

Jul-16

Oct-16

Source: Bloomberg, PSRMarket PriceTarget Price

12345



Contact Information (Singapore Research Team) Management Research Operations Officer Chan Wai Chee (CEO, Research - Special Opportunities) - [email protected]

Jacky Lee Chee Waiy (Head, Research) - [email protected]

Mohamed Ghazali - [email protected]

Consumer | Healthcare Property Developers | Hospitality Macro Soh Lin Sin - [email protected] Peter Ng - [email protected] Pei Sai Teng – [email protected] Transport| REITs ( Industrial ) REITs Technical Analyst

Richard Leow, CFTe, FRM - [email protected]

Dehong Tan - [email protected] Jeremy Ng - [email protected]

Contact Information (Regional Member Companies) SINGAPORE

Phillip Securities Pte Ltd Raffles City Tower

250, North Bridge Road #06-00 Singapore 179101 Tel +65 6533 6001 Fax +65 6535 6631

Website: www.poems.com.sg

MALAYSIA Phillip Capital Management Sdn Bhd

B-3-6 Block B Level 3 Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 50450

Kuala Lumpur Tel +603 2162 8841 Fax +603 2166 5099

Website: www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong

Tel +852 2277 6600 Fax +852 2868 5307

Websites: www.phillip.com.hk

JAPAN

Phillip Securities Japan, Ltd. 4-2 Nihonbashi Kabuto-cho Chuo-ku,

Tokyo 103-0026 Tel +81-3 3666 2101 Fax +81-3 3666 6090

Website: www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A Jakarta 10220 – Indonesia

Tel +62-21 5790 0800 Fax +62-21 5790 0809

Website: www.phillip.co.id

CHINA Phillip Financial Advisory (Shanghai) Co Ltd

No 550 Yan An East Road, Ocean Tower Unit 2318,

Postal code 200001 Tel +86-21 5169 9200 Fax +86-21 6351 2940

Website: www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak,

Bangkok 10500 Thailand Tel +66-2 6351700 / 22680999

Fax +66-2 22680921 Website www.phillip.co.th

FRANCE King & Shaxson Capital Limited

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel +33-1 45633100 Fax +33-1 45636017

Website: www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Capital Limited

6th Floor, Candlewick House, 120 Cannon Street, London, EC4N 6AS

Tel +44-20 7426 5950 Fax +44-20 7626 1757

Website: www.kingandshaxson.com

UNITED STATES Phillip Futures Inc

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel +1-312 356 9000 Fax +1-312 356 9005

Website: www.phillipusa.com

AUSTRALIA Phillip Capital Limited

Level 12, 15 William Street, Melbourne, Victoria 3000, Australia

Tel +61-03 9629 8288 Fax +61-03 9629 8882

Website: www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited 2nd Floor, Lakshmans Building,

No. 321, Galle Road, Colombo 03, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

Website: www.ashaphillip.net

INDIA PhillipCapital (India) Private Limited

No.1, 18th Floor, Urmi Estate 95, Ganpatrao Kadam Marg

Lower Parel West, Mumbai 400-013 Maharashtra, India

Tel: +91-22-2300 2999 / Fax: +91-22-2300 2969

Website: www.phillipcapital.in

TURKEY PhillipCapital Menkul Degerler

Dr. Cemil Bengü Cad. Hak Is Merkezi No. 2 Kat. 6A Caglayan 34403 Istanbul, Turkey

Tel: 0212 296 84 84 Fax: 0212 233 69 29

Website: www.phillipcapital.com.tr

DUBAI Phillip Futures DMCC

Member of the Dubai Gold and Commodities Exchange (DGCX)

Unit No 601, Plot No 58, White Crown Bldg, Sheikh Zayed Road, P.O.Box 212291

Dubai-UAE Tel: +971-4-3325052 / Fax: + 971-4-3328895

CAMBODIA

Phillip Bank Plc Ground Floor of B-Office Centre,#61-64, Norodom Blvd Corner Street 306,Sangkat Boeung Keng Kang 1, Khan Chamkamorn,

Phnom Penh, Cambodia Tel: 855 (0) 7796 6151/855 (0) 1620 0769

Website: www.phillipbank.com.kh

mailto:[email protected]









http://www.poems.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipusa.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/

http://www.phillipcapital.in/

http://www.phillipcapital.com.tr/

http://www.phillipbank.com.kh/



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