Healthcare / Raffles Medical / IHH

Healthcare / Raffles Medical / IHH: Deutsche had a non-deal roadshow for Raffles Medical (non-rated). It is an integrated private healthcare provider that operates the 380-bed Raffles Hospital in Spore, as well as a network of private clinics in Spore, HK and Shanghai. The co is adding capacity at its flagship hospital which should increase its clinical services and specialist offerings by 2014. It is also set to open its Specialist Medical Centre along the prime Orchard Rd area by 1H13. While RMG has been raising prices, its pricing are currently still 20-40% below IHH’s Gleneagles and Mt. Elizabeth Hospital respectively. Looking to expand its footprint abroad, the co. has tendered for the smaller 27.5k sm hospital site at Wong Chuk Hang, HK. Tender results will be announced early 2013. Assuming that RMG gets the hospital site in HK, the co. would need $170-200m in capex and would likely need to seek additional funding. As at 1H12, RMG has a healthy net cash balance sheet of $84.2m. Deutsche notes hospital stocks in the region have outperformed their respective markets and trade above-market valuations of >20x PER and mid-to-high teens EV/EBITDA multiples in FY13E. Believes the premium valuations in the sector are justified by the stronger growth trajectory and more defensive business model offered by the healthcare companies. The house likes IHH Healthcare for its unique positioning in higher growth healthcare markets and capacity expansion plans that should drive robust 2-year adj. EBITDA CAGR of 26%. The stock is currently trading at 17.1x FY13E adj. EV/EBITDA.