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Raffles Medical Group Limited - Will it be successful in China?

4/11/2013 – Brokers have maintained their bullish stance on Raffles Medical Group due to an expected increase in its cash balance from the sale of the Thong Sia Building, and possible expansion in China.

CIMB Research has maintained its OUTPERFORM rating with a target price of S$3.81.

It believes that cash proceeds from the sale of its building will be used in overseas ventures or some form of special dividends for shareholders.

Maybank Research also maintained a BUY rating with a target price of S$3.80.

It believes that the stock deserves a re-rating as overseas expansion plans become more concrete over the next 12 months.

Raffles Medical says the healthcare landscape will remain competitive due to new public and private hospitals being developed in Singapore and the region.

The more measured pace of economic growth in China and Singapore may have a dampening effect on healthcare demand.

The company announced these earnings for Q3 FY13 on October 28:

Revenue: +8% to S$85.1 mln
Profit: +10.3% to S$14 mln
Cash flow from operations: S$25.4 mln vs S$15.4 mln

Raffles Medical's growth in revenue came from 9.4% growth in hospital services and 5.7% growth in its healthcare service division.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

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1. Will it be successful with its joint venture partners in China?

The Group has signed Letters of Intent with two separate parties to establish hospitals in Shenzhen and Shanghai.

One is with Shanghai Lujiazui to collaborate on a Greenfield hospital in Pudong, and other with China Merchant Group, whereby Raffles Medical will be the operator and majority shareholder.

However, the joint venture proposals are yet to be finalised.

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2. When does it expect to finalise the joint venture partnerships?

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3. What is left to negotiate with the joint venture parties?

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4. How much stake will the Group hold in the joint ventures?

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5. What is it’s the strategy to grow in China with the joint ventures?

(Total:13 questions)

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