MARKET PULSE: Raffles Medical, Downstream O&G (24 Jul 2012)

Stock Name: RafflesMG
Company Name: RAFFLES MEDICAL GROUP LTD

Research House: OCBC

Price Call: HOLD

Target Price: 2.63

MARKET PULSE: Raffles Medical, Downstream O&G

24 Jul 2012

KEY IDEA Raffles Medical Group: Downgrading to HOLD Raffles Medical Group's (RMG) 2Q12 revenue of S$76.9m (+14.9% YoY; +5.5% QoQ) was in line with our expectations but PATMI of S$12.4m (+6.8% YoY; +6.9% QoQ) was slightly below due to higher-than-expected operating expenses. Topline growth was driven by both its Hospital Services and Healthcare Services divisions, which increased 19.1% and 9.1% YoY, respectively. As expected, an interim dividend of 1 S cent/share was declared, similar to 1H11. We maintain our revenue projections but cut our PATMI estimates for FY12 by 4.2% and FY13 by 3.0% on lower margin assumptions. Our fair value estimate thence declines from S$2.73 to S$2.63. While we expect RMG's earnings growth to remain fairly resilient despite cost pressures, we see limited upside from current price level given its recent share price surge. Downgrade RMG from Buy to HOLD. (Wong Teck Ching Andy) MORE REPORTS Downstream Oil & Gas: Weak 2QCY12 results expected Downstream oil & gas companies under our coverage (Rotary Engineering and PEC Ltd) will report their 2QCY12 results next month and we expect relatively weak financial performances from both companies. The sector has been experiencing severe pricing competition amidst a shortage of local large-scale petrochemical project works; and profitability for has fallen to historical lows. In our view, a quick turn-around is unlikely. Investors should also watch out for any unexpected delay on Rotary's Fujairah project and PEC's unresolved claim on its Rotterdam JV. As we feel that there are more downside risks than upside risks, we keep our UNDERWEIGHT rating. Maintain HOLD on both Rotary(FV: S$0.64) and PEC (FV: S$0.50). (Chia Jiunyang)

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NEWS HEADLINES - U.S. stocks fell on Monday with concerns about Europe, pushing U.S. Treasury yields to new lows. The Dow and the S&P 500 Index closed down 0.8% and 0.9% respectively. - Spain's Valencia region has asked the central government for a financial lifeline. Madrid announced that it would ban short-selling after the interest rate on 10-year Spanish bonds rose past 7.5%. - Keppel Shipyard has secured three conversion contracts with an initial combined value of S$103m. - Orchard Parade Holdings has purchased a 33% stake in FEO Asset Management, the proposed manager of Far East Hospitality REIT, for S$330k. It has also purchased a 33% interest in FEO Hospitality Management, the proposed manager of Far East Hospitality Business Trust, for S$33. - Tainjin Zhong Xin Pharmaceutical Group Corp. says it expects to report a 50-70% YoY increase in 1H12 net profit from RMB195m (S$38.5m) due to gain on disposal of its subsidiary, an increase in return on investments from associates and better performance in its main business.