Money Talk: Raffles Medical Group, Etika International Holdings

Exterior shot of Raffles Hospital. -- PHOTO: ST FILE
Exterior shot of Raffles Hospital. -- PHOTO: ST FILE

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. Raffles Medical Group

Broker: Maybank Kim Eng

We cut Raffles Medical to Hold following its recent share price rally that has pushed valuations to record levels. The stock looks fairly valued and its relative valuation discount vs. its sector peers has also evaporated. In our view, much of the positives are already in the price. Our target price is lowered slightly to $3.94.

Raffles Medical announced its initial plans to expand into China in Feb 2013. Up until now however, details have remained sketchy and the preliminary agreements signed in 2013 have yet to solidify into more concrete joint venture agreements. Management said that the company remains committed to the China expansion, but cautioned of possible delays. Even if the projects are confirmed, it would still take two to three years for operations to begin.

Meanwhile, a new privately-owned hospital - Connexion at Farrer Park - is expected to open its doors next month. The new hospital has a strong Indonesian financial backer. 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.

For now, we think Raffles Medical's premium valuation is justified given its resilient corporate customer base and diversified foreign patient base.

2. Etika International Holdings

Broker: OSK-DMG

Etika's sale of its dairy and packaging business to Asahi fetched a handsome price of US$329m and will leave the group flush with cash even after paying down its debts. Etika will book a gain of 625 million ringgit after taking into account transaction cost.

Etika grew its canned milk business in Malaysia under the Dairy Champ brand for over a decade, ranking just behind Nestle and F&N in market share. While the sale will result in the loss of its key profit generator for the group, Etika plans to expand its remaining businesses in nutritional products, food retail and trading.

An area it is optimistic on is its Texas Chicken chain in Malaysia, which it intends to scale up.

We estimate the company will have a cash pile of some $0.40/share, part of which will be distributed to shareholders as a special dividend.