Brokers' take

RAFFLES MEDICAL GROUP | BUY

TARGET PRICE: S$1.72

APRIL 4 CLOSE: S$1.445

RHB, APRIL 4

Raffles Medical announced that it would develop a new hospital in Chongqing, China, which will have a capacity of 700 beds and is expected to commence operations in phases from August 2018.

While we make no changes to our forecast and TP at the moment - as management said that more details would only be given in 2Q17 - our early-stage forecast estimates this project to potentially add S$1.12 per share to Raffles Medical's value, based on a progressive five-year capacity ramp-up period.

We keep our Buy call on the stock, with an unchanged TP of S$1.72. Including the 188 million yuan (S$38m) consideration payable for the land and construction incurred, management expects the development to cost around one billion yuan.

RAFFLES MEDICAL GROUP | SELL

TARGET PRICE: S$1.36

APRIL 4 CLOSE: S$1.445

CIMB, APRIL 3

Raffles Medical Group is in a heavy expansionary phase. Even as margins have been declining over the past three years (FY13 core Ebitda margin: 23 per cent; FY16: 19.7 per cent), this was only due to gestation costs from smaller projects (Shaw Centre, ISOS, Holland V).

We have yet to see the cost impact from its larger investments (Singapore hospital extension in 2H17, Shanghai hospital and now Chongqing hospital).

We, therefore, strongly believe margin pressure will further intensify over FY17-18F. Raffles Medical's Chongqing hospital could drag down our FY17-18F Ebitda by 5-30 per cent.

Now that the group also has to recruit for the hospital in Chongqing, consensus could lower its margin assumptions in the coming quarters. With valuations still rich at 26x CY17 EV/Ebitda (above peers' 23x and its historical average of 23x), we choose to maintain our Reduce call.

BREADTALK | BUY

TARGET PRICE: S$1.69

APRIL 4 CLOSE: S$1.40

DBS GROUP RESEARCH, APRIL 4

After dismal performances in FY15 and 1H16, we saw a turnaround in 2H16 earnings. Its cost-saving initiatives led to margin improvements and we saw a recovery of its foodcourt business through outlet rationalisation in China.

Turnaround of its foodcourt business in China, better bakery cost efficiencies and outlet expansion of high margin Din Tai Fung restaurants will collectively drive earnings growth in the medium term. BreadTalk's valuation based on its core business (ex-property investments) is compelling at 18x FY17F PE.

It has a track record of monetising its property investments (111 Somerset and 112 Katong). We value its core retail business at S$1.33 per share pegged to 22x PE, in line with peers; reinstating coverage with a Buy.

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