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Raffles Medical Group Ltd. - Why so confident the new Farrer Park hospital won’t take away business?

5/8/2014 - Raffles Medical is banking on the ageing population in Singapore, and says the region will continue to generate increased demand for reliable curative healthcare services.

It saw further growth and expansion in Q2 FY14.

A new 3,000 square feet integrated medical centre was opened at the Marina Bay Financial Centre (MBFC) in June, offering family medicine, Health Screening, Dental, Obstetrics & Gynaecology and Radiology services.

The existing clinics at Sembawang Way and Asia Square were expanded to include dental services.

It was also awarded a contract by the Civil Aviation Medical Board in April to handle pilot licensing examinations for the Civil Aviation Authority of Singapore.

The company just announced earnings for Q2 FY14:

Revenue: +6.6% to S$92.6 mln
Profit: +8.1% to S$15.7 mln
Cash flow from operations: S$38.6 mln vs S$27 mln
Dividend: 1.5 cents per share vs 1 cent per share

Revenue increased due to more patients visiting, as its clinic network continues to expand.

Other contributory factors include the securing of new corporate contracts both locally and overseas and the addition of more specialist consultants.

Its healthcare insurance services also generated higher sales in the second quarter.

After the earnings were released, CIMB Research maintained its ADD rating with a target price of S$4.57 while Maybank Research has a HOLD call with a target price S$3.94.

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

Question
Question

1. Why so confident the new Farrer Park hospital won’t take away business?

A new privately-owned hospital, Connexion at Farrer Park, is expected to open its doors this month.

This new hospital was developed by a group of 22 doctors practising at the Parkway Group’s hospitals, who wanted to set up an independent hospital of their own, along with investments from Indonesia’s fourth richest billionaire Low Tuck Kwong of coal miner Bayan Resources.

Connexion chairman Dr Maurice Choo, a cardiologist, has been quoted in the press as saying that they plan to "disrupt the market" with lower prices.

According to Maybank Research, Management does not think that the opening of a new private hospital in Farrer Park will pose a threat.

This is because Farrer Park operates on a different business model.

Question
Question

2. Can management explain how different Farrer Park's business model is?

Total number of questions in the full story: 5)

We have invited the company to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this article if we do.


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