A bitter pill to swallow: Slow growth, high expenses ail Raffles Med's prospects

Weak demand is hurting its bottom line.

High expenses and slowing regional healthcare demand are hurting Raffles Medical’s growth prospects, according to a report by CIMB.

CIMB said that the twin effects of dampened demand and higher costs were the key culprits behind the group’s sub-par results in the second quarter.

“We think that the more measured pace of economic growth in Singapore and the region, coupled with regional currencies weakening against the S$, will dampen healthcare demand. This was evident in 2Q15 when hospital services revenue rose by a modest 6.6% yoy, similar to the mid-single-digit growth in the past four quarters (vs. 13.7% average yoy growth in 2010-13),” the report noted.

“Even after accounting for the positives from its Shanghai hospital, we think its current valuations are not justified. The hospital extension has also been delayed from 1Q17 to 2Q17 due to construction issues. De-rating catalysts could come from slower than expected ramp up and further delays in expansion projects,” CIMB said.