Here's why Raffles Medical investors were concerned over Singapore's polyclinic plans

Its share price dipped 4.7% a day after the announcement of the new clinics.

Raffles Medical Group’s price fell 4.7% the day after prime minister Lee Hsien Loong’s latest National Day Rally speech. Lee unveiled plans for an expanded Community Health Assist Scheme (CHAS) to cover all Singaporeans with chronic conditions, a Merdeka Generation Package for those born between 1950-1959, and six more polyclinics by 2023.

“In our opinion, [the six polyclinics] might have been of some concern, given the possibility of it providing more competition to Raffles Medical's clinics,” OCBC Investment Research analyst Joseph Ng said. “However, this move is no surprise, given that a similar announcement was already made in the March 2018 Committee of Supply debate.”

The new supply of healthcare provision has and should already been well internalized by the market, the analyst concluded.

Separately, Raffles Medical would not have to worry about capex amidst its memorandum of understanding (MOU) with China Taiping Insurance Group (CTIG) for medical/healthcare insurance solutions, OCBC Investment Research said.

The initial costs would likely be confined to the joint marketing of products, said analyst Joseph Ng in a research note. “In our view, this collaboration is a strategic and logical move for Raffles Medical, given the group’s existing clinics in China, as well as the upcoming opening of Raffles Hospital Chongqing and Raffles Hospital Shanghai in 4Q2018 and 2H2019, respectively.”

Moreover, Singapore should also see some benefits from the deal. Ng said, “CTIG has overseas businesses in the UK, Indonesia and Singapore, which are very much in-line with the Chinese government’s Belt and Road initiative, and the group is looking at ways to proactively provide risk protection and services for Chinese businesses overseas.”

Consequently, this could help drive both individual and corporate loads to the Raffles Medical’s network of island-wide clinics as well as to Raffles Hospital.