RMG posted strong 1Q09 results, with net profit up 28% y-y on improved cost efficiencies. The healthcare services segment (including its primary care network and insurance arm) grew by 10.8% y-y, confirming its defensiveness amid the downturn. Despite the downturn, RMG is still in growth mode, particularly in expanding its primary healthcare network. The group is taking the opportunity to lock in low rental rates and expand its clinic network, while at the same time focusing on organic growth. It has opened four new clinics in the year-to-date, including an integrated outpatient centre at Tampines One offering specialty services such as O&G and paediatric medicine. In terms of hospital capacity, management highlighted that the group is only utilising 200 beds currently, and could expand up to 320 beds if demand arose.

Management reiterated its conservative stance on pursuing M&A opportunities in the region. The group highlighted China and Southeast Asia (particularly Malaysia) as the key regions of potential opportunity. Management continues to be wary of the regulatory environment in China. It is currently evaluating potential projects in cities like Beijing, with the aim of doing a greenfield project. One challenge is the selection of a local partner, since Chinese regulations cap foreign ownership of hospitals at 70%.

Our price target of S$1.30 (unchanged) is based on a target P/E of 16.4x applied to FY10F earnings, pegged within the mean of RMG’s historical trading range (method unchanged).