For its hospital, a 7% decline in local patients was offset by a 13% increase in foreign patients. While the recession could have played a role in this decline, management believes the H1N1 pandemic was the major reason, noting that the public hospitals are seeing the same trend of people staying away from hospitals if possible. There were also minor exceptional costs involved in public and infection control measures.
Management continues to keep a tight lid on operating efficiencies. Staff cost, the major cost component, continues its steady decline from 49% of revenue in FY08 to 48% in 1H09, resulting in increased profits. 1H09 net profit of $16.6m now forms 45% of our FY09 forecast. With the effects of H1N1 now gradually subsiding, we expect stronger performance in 2H09.
With the full ownership of its Raffles Hospital since 2007, RMG has been generating stronger cash flow than ever. With a net cash position of $27.5m, management continues to be on a lookout for opportunities. However, since management prefers Greenfield projects which do not require as much outlay, we deem that a cash distribution could be likely.
With this stellar set of results achieved against the backdrop of the global recession and the H1N1 pandemic, it is another testament to RMG’s brand of consistent incremental growth. We keep our forecasts intact and expect RMG to comfortably surpass the FY09 consensus NP of $33.5m. Our FCFE target price of $1.38 implies 20X FY09 estimated earnings.
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