Raffles Medical

Raffles Medical: Raffles Medical's plans to expand into China have remained sketchy one-year on, without any concrete joint venture agreements clinched. Although management maintained its commitment in China, group cautioned possible delays. Maybank-KE reckons any confirmed projects would still take two to three years for operations to begin. While in Singapore, upcoming private hospital- Connexion at Farrer Park, expected to begin operations in Aug, may increase competition risk in the medical space. Connexion chairman, Dr Maurice Choo, a cardiologist, has been quoted in the press as saying that they plan to “disrupt the market” with lower prices. Following the stock's recent share price rally, the valuation gap to sector peers had been bridged and much of the positives has been priced in. Maybank-KE downgrading to Hold from Buy with a TP of $3.96. At 33x FY14E P/E, the stock looks fairly valued relative to its 2 years earnings CAGR of 12%. The relative valuation discount vs sector peers has also evaporated, with much of the positives are already in the price. There has also been a lack of details of Raffles Medical impending expansion into China, where the group first announced its plans into China in Feb ‘13. Up until now however the preliminary agreements have yet to solidify into more concrete joint venture agreements. While management remains committed to the China expansion, they are cautioning of possible delays. Even if the projects are confirmed, it would still take 2-3 years for operations to begin. For now, think Raffles Medical’s premium valuation is justified given its resilient corporate customer base and diversified foreign patient base, but upside appears limited.