Raffles Medical Group

Private healthcare provider, Raffles Medical Group (RMG) is broadening its horizons in China with a second hospital in Chongqing, China. While details are scarce, Maybank KE sees much merit in the acquisition and reiterates its Buy rating with TP of $1.70.

RMG is acquiring a 28,000 sqm site that houses a partially constructed building in Liangjiang, Chongqing, which will be developed into a 700-bed international tertiary general hospital.

Financial details such as ownership, total capex and start-up plans have yet to be determined, RMG is confident of keeping capex for its second Chinese hospital at below Rmb1b. For comparison, its 400-bed Shanghai New Bund Hospital, which is currently under construction and slated for completion in 2019 has an investment price tag of Rmb800m.

As construction of the Chongqing hospital is already underway, management expects completion to be fast-tracked with the hospital up and running by 3Q18.

With the addition of this new hospital, RMG's Chinese hospital portfolio will swell to 1,100 beds, dwarfing its domestic bed capacity of 380.

While management continues to be bullish on the Chinese healthcare industry, Maybank KE notes that execution risks in managing the opening of two large hospitals in China have increased.

On this, RMG is building up its understanding of the operating environment through its seven medical clinics/centres in China.

The fact that the Chongqing hospital is an inter-governmental project should also help to mitigate any regulatory risks.

With planning for the Chongqing hospital currently ongoing, Maybank KE notes that its valuation for the Shanghai New Bund Hospital of $0.38/share could be applied conservatively to the Chongqing hospital (larger but with lower spending power than Shanghai residents). This would indicate further 22% upside to the house's current TP.