RMG

RMG -Maybank-KE upgrades to the healthcare group to Buy from Hold with TP of $5.10.

The house believes that demand for quality healthcare in China is being fed by growing affluence and life expectancies, with a 2010 survey by the Economist Intelligence Unit suggesting that the quality of healthcare tops the concerns of the wealthier Chinese.

Chinese hospitals are currently overstretched, compounded by quality issues, which presents Raffles Medical with opportunity to plug the gap with its strong focus on service quality.

Maybank-KE opines that RMG can be considered an early entrant into an attractive industry, while lengthy bureaucratic processes and operation risks form high barriers to entry. The new Shanghai New Bund International Hospital will be the first to be developed and managed by a foreign-local JV in China.

Overall, the house is positive on RMG’s China expansion to meet growing demand, and believes that the group will be able to leverage its 15 years of expertise in hospital operations to break into China’s market. Other catalysts are expected from further developments in China and contributions from local expansion.

RMG trades at 33.9x forward P/E and has a net cash of $120.9m.