Raffles Medical Group (RMG SP)
Increased volume of local and international patients
Boost from implementation of means testing.
Raffles Hospital benefits from the implementation of means testing at restructured government hospitals from Jan 09 as local patients accounts for two- third of its admissions. Subsidies for “high-income†patients earning S$5,201 and above per month will be reduced to 65% for Class C wards (current: 80%) and 50% for Class B2 wards (current:65%).
This will reduce the pricing differential between government hospitals and private hospitals, resulting in more high-income patients seeking treatments at private hospitals.
Raffles Hospital plans to add another 50 beds in 2008, bringing the total to 250 beds, to cater to increased demand from local and international patients.
Reiterate BUY. We like RMG for the growth momentum at Raffles Hospital. Raffles Hospital will benefit from the influx of foreign patients, increase in revenue intensity and positive impact from economies of scale. Our target price of S$2.27 is based on a three-stage discounted cash flow model.