Raffles Medical Group

Raffles Medical Group: CS downgrade to Underperform with $2.80 TP. Note that SG continues to be Raffles Medical’s main driver, with only a small presence in HK and China. In SG, Raffles is trying to expand its presence with the proposed expansion of its hospital space and opening of a new specialist centre. While Raffles Medical has a strong franchise with 15%+ ROEs and 10%+ sustainable earnings, which is good for a Singapore business, valuations are probably pricing in much more than the underlying organic growth potential. Potential negative catalysts: 1) Failure to deliver on expansion foray overseas to boost medium term growth 2) Singapore margins are probably close to their peak now 3) Failure to obtain approvals for the specialist centre at Thong Sia Building, 4) Further delays in the proposed expansion of Raffles Hospital.