January 7, 2018

Healthcare - Overall Checking the pulse for 2018

■ Healthcare sector underperformed the STI in 2017, largely due to new hospitals. INGAPORE ■ We think such gestation costs are priced in, but expect sector sentiment to improve when these overseas hospitals stabilise, and stronger catalysts emerge. ■ Maintain Neutral; our top large and small cap picks are IHH and HMI, respectively.

S ■ Three main healthcare changes to watch for: opening of more public hospital beds, shift from hospital-centric model to primary care, and introduction of fees benchmark. ■ 2018F key theme lies in overseas execution, with M&As as the secondary theme as rising competition could drive industry consolidation.

AVIGATING AVIGATING

N

Analyst(s) NGOH Yi Sin T (65) 6210 8604 E [email protected]

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE Powered by END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB the EFA SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. Platform

Navigating Singapore│Healthcare - Healthcare - Overall│January 7, 2018

TABLE OF CONTENTS Transforming Singapore Healthcare ...... 5 Outlook for Singapore Healthcare sector ...... 12 Valuation and Recommendations ...... 18 Company Briefs ...... 24

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Sector Note

Singapore Healthcare - Overall Checking the pulse for 2018 Neutral (no change) ■ Healthcare sector underperformed the STI in 2017, largely due to new hospitals. ■ We think such gestation costs are priced in, but expect sector sentiment to improve Highlighted companies when these overseas hospitals stabilise, and stronger catalysts emerge. Health Management International ■ Maintain Neutral; our top large and small cap picks are IHH and HMI, respectively. ADD, TP S$0.83, S$0.67 close ■ Three main healthcare changes to watch for: opening of more public hospital beds, We believe HMI is well-positioned to benefit shift from hospital-centric model to primary care, and introduction of fees benchmark. from the growing medical tourism in Malaysia ■ 2018F key theme lies in overseas execution, with M&As as the secondary theme as with its two established hospitals there. Partnership opportunities with its new strategic rising competition could drive industry consolidation.

shareholder could be a catalyst. 2018F: recovering from 2017’s bout of flu; overall Neutral IHH Healthcare Bhd Most healthcare stocks in Singapore underperformed in 2017, with average returns of - ADD, TP RM7.06, RM5.82 close 14.8% vs. STI’s 18.1% gain. While start-up concerns from overseas hospitals are largely A leading private healthcare provider with in the price, we believe the sector would only re-rate once they stabilise. Hence, our 2018 diversified presence, IHH continues to add sector call remains intact at Neutral. Downside risks for the sector include intensifying capacity in its key existing and new markets. competition from regional peers, unfavourable regulations and FX movements. Stronger- Potential catalysts include improving earnings than-expected overseas execution and synergistic M&As are potential catalysts. from the ramp-up of Gleneagles HK (GHK) and synergistic M&As. Healthcare regulators playing catch-up Raffles Medical Group We see a trend of rising regulatory intensity amid changing healthcare landscape: ban of ADD, TP S$1.24, S$1.12 close third-party administrators (TPA), prohibition of profit guarantees for M&A deals, growing A beneficiary of ageing and better insured emphasis on primary care, and introduction of fees benchmark. These changes could population in Singapore, RFMD will see make competition more severe and drive consolidation, impacting asset-light specialist capacity expansion in 2018F from both hospital groups more vs. hospitals. The addition of more public hospital beds is unlikely to be a extension and the upcoming opening of threat to private hospitals, whose market share of inpatient admissions has been resilient. Chongqing hospital. Headwinds aplenty in medical tourism, but Singapore’s a survivor A strong Singapore dollar against regional currencies, coupled with a potential GST hike, Summary valuation metrics could make medical tourism less affordable and appealing to foreign patients, particularly P/E (x) Dec-17F Dec-18F Dec-19F when healthcare quality in nearby countries like Malaysia and Thailand are showing Health Management International 34.19 25.94 22.59 improvement. However, the high international standing of Singapore healthcare system, IHH Healthcare Bhd 71.05 52.71 39.75 Raffles Medical Group 28.45 31.25 36.03 coupled with active outreach of private healthcare groups to new and existing overseas markets, could help counter such headwinds, keeping medical tourism stable. P/BV (x) Dec-17F Dec-18F Dec-19F Health Management International 7.88 5.95 4.88 Overseas growth gaining prominence IHH Healthcare Bhd 1.94 1.88 1.81 Many healthcare companies in Singapore have been tapping overseas growth since Raffles Medical Group 2.83 2.72 2.65 2014, in the wake of slowing medical tourist arrivals at Singapore. In 2018, North Asia

Dividend Yield Dec-17F Dec-18F Dec-19F expansion plans will be the focal point for both RFMD and IHH, with targeted 2H18 Health Management International 0.61% 0.77% 0.89% openings of 700-bed Chongqing and 350-bed Chengdu hospitals, respectively. IHH Healthcare Bhd 0.36% 0.42% 0.54% Meanwhile, we expect sequential earnings recovery for IHH, premised on narrowing Raffles Medical Group 1.79% 1.79% 1.79% losses and continual patient ramp-up for Gleneagles HK (GHK).

Insert IHH and HMI as top picks Our top picks are now IHH (large-cap) and HMI (small-cap). RFMD remains an Add as we believe its current share price is attractive for China healthcare exposure in the longer term. We maintain Talkmed as a Hold on near-term stock overhang, and keep Q&M Dental at Reduce as its lacklustre earnings outlook does not justify its valuation. We also highlight ISEC and HC Surgical as possible laggard plays in the asset-light healthcare space, and think Rowsley could be interesting with the injection of Thomson Medical.

Figure 1: Currently under public consultation, the draft Healthcare Services Bill (HCS) will be replacing the existing Private Hospitals and Medical Clinics Act (PHMCA) Key features of draft Healthcare Services (HCS) Bill Broadening of regulatory scope to cover healthcare services, nursing and allied health services, 1 traditional medicine, complementary and alternative medicine. Beauty and wellness services will not Analyst(s) be included. Changes to licensing framework of healthcare providers, from current premises-based licensing, to 2 services-based licensing. 3 Ensuring competent governing bodies, and refining roles and responsibilities of key personnel Changes to Quality Assurance Committees for selected licensees for clinical quality and medical 4 ethics 5 Implementing "step-in" safeguards for residential care services

6 Compulsory adoptation of National Electronic Health Record (NEHR) NGOH Yi Sin 7 Prohibition of unsafe practices, services and employment restrictions T (65) 6210 8604 8 Implementation of measures to minimise public misperception E [email protected] 9 Penalties under the HCS Bill SOURCES: CIMB, MOH

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Navigating Singapore│Healthcare - Overall│January 7, 2018

KEY CHARTS

1,000,000 Title: At critical crossroad for ageing population No. of Singaporeans aged 65 and 1 in 4 According to the Department of Statistics and 900,000 above by 2030 to double to 900K Source: Population.sg, by 2030, the number of Singaporeans aged 800,000 1 in 5 Please fill in the values above to have them entered in your report 65 and above would double to 900k from 440K in 2015. 700,000 1 in 6 Given this, coupled with growing chronic disease 600,000 prevalence, healthcare needs and costs in Singapore will 500,000 1 in 8 continue to be on an upward trend. 900,000 400,000 760,000 1 in 10 https://population.sg/articles/older-singaporeans-to-double-by-2030 300,000 1 in 11 590,000 200,000 440,000 330,000 270,000 100,000

- 2005 2010 2015 2020 2025 2030

Projections assume Total Fertility Rate of 1.2 and current immigationrates

Expanding public bed supply by c.30% by Hospital beds (public and private) in Singapore over 2006 - 2016 18,000 2.5 2.5 2.6 Title: 2020F 2.4 2.4 16,000 2.3 Source: 2.2 2.2 2.4 Hospital beds (from both restructured and private hospitals) 2.2 2.2 2.2 14,000 2.1 in Singapore have grown at 2.3% CAGR from 2006 to 2.2 Please fill in the values above to have them entered in your report 12,000 3,613 3,414 2.0 2016, with additional 3,200 acute care beds and 1,050 3,015 2,852 2,862 10,000 2,884 2,813 2,936 2,917 2,852 2,810 community care beds from the upcoming Sengkang 1.8 8,000 General and Community Hospital (2018), Outram 1.6 6,000 10,318 Community Hospital (2020), Integrated Care Hub (2022), 9,262 9,844 1.4 4,000 8,187 8,235 8,190 8,289 8,249 8,304 8,725 8,939 and Woodlands General Hospital (2022). Other healthcare 1.2 facilities in the pipeline include a new National Cancer 2,000 0 1.0 Centre, Health City Novena Complex (by 2030), polyclinics, 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 family medicine clinics, and more aged-care facilities. Others (including psychiatric and community hospitals) Acute Hospital beds Beds per 1000 people

SG has 2.2 doctor per 1,000 population, at the 18,000 Number of Specialists and Non-specialists 2.5 Title: in Singapore from 2008 - 2016 2.2 2.1 Source: lower range for developed nations 16,000 2.0 1.9 1.8 2.0 Over 2008-2016, the number of doctors in Singapore rose 14,000 1.7 Please fill in the values above to have them entered in your report 1.7 at a CAGR of 6.5%, improving the overall doctor per 1,000 12,000 1.5 1.6 population ratio from 1.5 to 2.2. This is supported by an 1.5 10,000 expanding annual medical student intake into local 7,671 7,920 8,000 7,248 universities from 354 in 2012 to 471 in 2016, as well as 6,829 1.0 6,011 6,358 6,000 5,656 returning Singaporean doctors who are trained overseas. 4,879 5,143 4,000 As of end-2016, the medical talent pool is made up of 84% 0.5 4,788 5,047 local doctors, and Ministry of Health (MOH) projects it to 2,000 3,867 4,124 4,485 2,962 3,180 3,374 3,635 further grow to 500 in 2018F. 0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016

No. of Specialists No. of Non-Specialists Doctor per 1,000 Population

Increasing insurance penetration in 100% Title: Singapore 16% 12% 10% 8% 7% 7% 6% Source: 90% 22% 20% About 2/3 of Singapore resident population today has 35% 33% 80% 31% 30% 34% 32% Please fill in the values above to have them entered in your report integrated shield plan (IP) coverage, up from 43% in 2006. 70% 37% 35% 35% 34% According to MOH, IP coverage grew at a steady 6% 60% 35%

CAGR over 2006-15, possibly driven by rising affluence 50% and an ageing population. We believe a better insured 40% 67% population will help support demand for private healthcare 30% 61% 63% 64% 65% 55% 58% 46% 49% 52% services. 20% 43%

10%

0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

IP coverage Medishield/Medishield Life coverage only No coverage

SOURCE: CIMB RESEARCH, COMPANY REPORTS

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Checking the pulse for 2018

Transforming Singapore Healthcare Structural trends in Singapore The vital signs of the healthcare state point to a changing healthcare landscape. Singapore continues to face an ageing population, rising chronic disease prevalence, escalating healthcare costs and increasing complexity of care needs (Figures 2-4). These trends not only underscore the increasing importance of primary care sector, but have also ignited greater efforts by the Ministry of Health (MOH) to strengthen the nation’s overall healthcare ecosystem (Figure 5), as seen in its recently implemented Healthcare 2020 Masterplan and the study of Health Insurance Taskforce recommendations. We outline the following initiatives that one should be aware of, and attempt to assess in our report the potential beneficiaries in Singapore’s healthcare sector: 1) increasing capacity of public hospitals, 2) shift from hospital-model to primary care, and 3) introducing new benchmarks for doctors’ fees.

Figure 2: Proportion of population over 65 Figure 3: Chronic non-communicable Figure 4: Ministry of Finance predicts govt from 2016 to 2030F in Singapore diseases (NCDs) accounted for the healthcare spending to rise to S$13bn in majority of deaths in Singapore in 2016 2020

% of deaths in SG by the top 4 principal causes US$bn Title: 25.0% 23.3% Title: 30 Total healthcare expenditure in Title: 35.0 Singapore - PublicSource: vs Private 30.5 Source: Source: 30.1 29.4 29.7 29.6 30.0 25 20.0% Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 25.0 8.3% 15.0% 20 CAGR 15.0% 20.0 12.4% 9.4% 15.0 18.5 19.0 19.4 19.3 15 CAGR 15.0 16.8 10.0% 10.9 10.0 10 8.4 7.3% CAGR 5.0 12.1% 5.0% 1.5 1.3 1.4 1.3 1.7 CAGR 5 9.6 7.2 - 5.1 2012 2013 2014 2015 2016 0.0% 0 2016 2020F 2030F Cardiovascular Diseases Cancer 2013 2016E 2020F

Proportion of population >65 Pneumonia Diabetes Public Private

SOURCE: FROST & SULLIVAN 2017 SOURCE: CIMB RESEARCH, MOH SOURCE: FROST & SULLIVAN

Figure 5: Where Singapore's healthcare is heading … Figure 6: The number of policyholders with IPs grew at 6.3% CAGR over 2006-2016 9.9% 7.8% 7.8% 7.2% 10% Title: 6.4% 5.4% 3,000 3.7% Source: 3.4% 2.5% 2.8% 5%

0% Please fill in the values above to have them entered in your report 6.3% 2,500 CAGR -5%

-10% 2,000 -15%

-20% 1,500

-25%

1,000 -30% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of policyholders with IP ('000, LHS) yoy growth (%, RHS)

SOURCE: LIFE SCIENCE BOARD SINGAPORE SOURCES: CIMB, MOH

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Navigating Singapore│Healthcare - Overall│January 7, 2018

#1 More public hospital beds in the pipeline, but unlikely to take market share from private hospitals Hospital beds in Singapore, including both public and private hospitals, have registered 2.3% CAGR since 2006 to 13,931 beds at end-2016 (Figure 7). Meanwhile, the proportion of beds per 1,000 people stayed largely within the range of 2.1 to 2.5, similar to UK’s 2.6 hospital beds per 1,000 population, and the US’s 2.8. We expect the opening of new public hospitals and additional infrastructure investments (Figure 8) to culminate into more hospital beds for Singapore.

Figure 7: Hospital beds in Singapore grew at 2.3% CAGR from 2006 to 2016

Hospital beds (public and private) in Singapore over 2006 - 2016 18,000 2.5 2.5 2.6 Title: 2.4 2.4 16,000 2.3 Source: 2.2 2.2 2.4 2.2 2.2 2.2 14,000 2.1 2.2 Please fill in the values above to have them entered in your report 12,000 3,613 3,414 2.0 3,015 2,852 2,862 10,000 2,884 2,813 2,936 2,917 2,852 2,810 1.8 8,000 1.6 6,000 10,318 9,262 9,844 1.4 4,000 8,187 8,235 8,190 8,289 8,249 8,304 8,725 8,939

2,000 1.2

0 1.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Others (including psychiatric and community hospitals) Acute Hospital beds Beds per 1000 people

SOURCE: CIMB RESEARCH, MOH

Figure 8: Singapore’s public healthcare sector

SOURCE: MOH HOLDINGS

Another 4,250 public hospital beds to be added in the next five years. Even with the upcoming Sengkang General and Community Hospital (2018), Outram Community Hospital (2020), Integrated Care Hub (2022) and Woodlands General Hospital (2022), there will only be an additional 3,200 acute care beds and 1,050 community care beds. Based on the pipeline of new hospitals, as well as a projected population size of 5.8m to 6.0m by 2020 and 6.5m to 6.9m by 2030, according to the 2013 government White Paper, Singapore’s hospital bed to 1,000 people ratio will inch up slightly to an estimated 2.6-2.8 over 2020 to 2030, still below the Organisation for Economic Cooperation and Development (OECD) countries’ average of 4.7 acute hospital beds per 1,000 population in

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Navigating Singapore│Healthcare - Overall│January 7, 2018

2015. Japan and Korea have the highest hospital bed density (as of 2015 per 1,000 population), at 13.2 and 11.5 respectively, which we attribute to the higher proportion of ageing population. In 2016, the number of elderly (aged 65 and above) comprised 27.7% and 13.6% of the total population in Japan and Korea, respectively, based on local government estimates.

Unlikely to have much impact on private hospital operators. Private healthcare providers are also increasing their bed capacity, as seen in 2H17 opening of c.30 more beds at Mount Elizabeth Novena (under IHH Healthcare), and the upcoming opening of Raffles Hospital extension (under Raffles Medical Group) in 1Q18, which could add another 50-100 beds for the group. We do not foresee any threat of bed oversupply for these private hospital operators given the current low hospital bed density and long waiting time at restructured hospitals in Singapore. Neither do we expect the influx of hospital beds to wriggle market share away from private hospitals, in terms of inpatient admissions (Figure 9), as the percentage of non-public admissions has been stable over the past few years. We also note that the increasing patients’ preference towards “day procedures” and “outpatient treatment” has also made bed capacity a less relevant constraint to growing hospital patient volume.

Figure 9: Market share of hospital admissions for private hospitals remains stable despite more beds opening over the past few years

600,000 26.0% Title: 24.5% 24.7% 24.3% 23.8% 24.0% 23.7% 23.8% Source: 22.9% 22.8% 22.9% 24.0% 500,000 22.7% 22.0% Please fill in the values above to have them entered in your report 400,000

20.0%

569,165

519,545

507,691 491,005

300,000 476,035 18.0%

463,691

444,598

430,264

429,222

428,097 415,379 16.0% 200,000 14.0% 100,000 12.0%

0 10.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total hospital admissions % mkt share for private hospitals

SOURCE: CIMB RESEARCH, MOH

Figure 10: The opening of Raffles Hospital new extension will Figure 11: Farrer Park hospital (220-bed) is the latest addition to double the size of its existing hospital facilities private hospitals in Singapore, which opened in March 2016

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY

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Navigating Singapore│Healthcare - Overall│January 7, 2018

#2 Primary care to be the future healthcare delivery, potentially benefitting private GP players While the government has focused more on providing tertiary care and easing hospital bed crunch in the past, it is increasingly moving towards a sustainable healthcare system, with primary and preventive care being the cornerstone of such a system. We believe earlier diagnosis and prevention can help better manage overall healthcare costs and reduce the burden on tertiary care facilities. Initiatives that reflect national focus towards primary care include:  Introduction of National Electronic Health Record (NEHR) in 2011 to integrate and share medical records nationwide to support the seamless delivery of patient care, across both public and private healthcare providers.  Launch of the Community Health Assist Scheme (CHAS) in 2012 to enable Singapore Citizens from lower- to middle-income households to receive subsidies for medical and dental care at participating GP and dental clinics near their homes.  Formation of the Primary Care Network (PCN) in 2012 to encourage GPs to form virtual networks to provide team-based care to patients, with funding and administrative support from MOH.  Implementation of the Primary Care Master Plan in 2014 to promote the participation of public and private sectors in providing comprehensive and integrated care to patients with stable chronic conditions – such as SingHealth setting up Family Medicine Clinic at Chinatown Point.  Announcement of proposed changes in doctors’ training scheme in 2017 - MOH intends to review doctors training to become specialists, and also grow the number of medical trainees in family medicine from 387 over 2012- 15, to 504 over 2016-19, as part of the Healthcare 2020 Master Plan and Healthcare Manpower Plan 2020.

Figure 12: Specialists and non-specialists in Singapore from 2008-2016

18,000 Number of Specialists and Non-specialists Title: in Singapore from 2008 - 2016 Source: 16,000

14,000 Please fill in the values above to have them entered in your report

12,000 6.5% CAGR

10,000 7,671 7,920 8,000 7,248 6,829 6,011 6,358 6,000 5,656 4,879 5,143 4,000 4,788 5,047 2,000 3,867 4,124 4,485 2,962 3,180 3,374 3,635 0 2008 2009 2010 2011 2012 2013 2014 2015 2016

No. of Specialists No. of Non-Specialists

SOURCE: MOH

Grooming more non-specialists for Singapore’s future healthcare needs. From 2008-2016, the growth in the number of specialists (6.9% CAGR) in Singapore outpaced that of non-specialists (6.2% CAGR), improving the overall doctor per 1,000 population ratio from 1.5 to 2.2, which is above the average ratio in Hong Kong and Taiwan, but at the lower range of other developed countries like Japan, UK and the US. We think such growth trends are likely to change, as the government accelerates efforts towards strengthening primary care. For instance, MOH announced on 30 Sep 2017 its intention to review the doctors’ residency programme, which is currently adapted from the US. This is part of the move to encourage more doctors to practice family medicine, and have the right mix of specialists, including internal medicine, geriatrics and palliative care. Meanwhile, the annual intake of medical students into local universities has also increased from 354 in 2012 to 471 in 2016, with plans by MOH to grow to 500 in

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Navigating Singapore│Healthcare - Overall│January 7, 2018

2018F, supplemented by returning Singaporean doctors who are trained overseas. As of end-2016, the medical talent pool comprised 84% local doctors.

Potential beneficiaries of shift towards primary care. Unlike hospitalisation care which is largely provided by the public sector in Singapore, about 2,000 private general practitioners (GPs) look after 80% of primary care needs, with the remaining 20% provided by the government polyclinics, according to MOH press releases. Private GP clinics providers like Raffles Medical Group could benefit from a) the increasing focus on primary care as government subsidies were extended to private GP clinics, and b) possible spillover effect from overcrowded public polyclinics. MOH reported a median wait time of 17-28 minutes in March 2017, against the median time of 14 minutes in 2015. Raffles Medical Group owns 40-50 GP clinics (CHAS and Medisave approved) country-wide and the healthcare services segment contributed to 44% of its FY16 revenue and 17% of EBIT. We note that earnings contribution from primary care pales in comparison with tertiary care (i.e. running a hospital), due to the lower average bill sizes and profitability. However, investments in primary care vs. tertiary care are generally less capital-intensive and have a shorter payback period. Even smaller-cap specialist healthcare groups like ISEC Healthcare (ISEC SP, Not rated) and HC Surgical Specialists (HSP SP, Not rated) have also jumped onto the GP bandwagon by purchasing stakes in JL clinics and HMC Medical, respectively.

Aged care possibly an alternative to invest in Singapore’s healthcare. Apart from investments in public hospitals and more polyclinics, there is also an increasing national focus to build and expand more aged care facilities to cope with an ageing population in the future. From 2017 to 2020, MOH plans to add another 4,200 nursing home beds, 6,200 day care places and 2,500 home care places. SGX-listed companies that currently have exposure to this area include Singapore Press Holdings (SPH SP, Reduce) which acquired Orange Valley Healthcare (operates five nursing homes and two senior activity centres) in 2017; and G.K.Goh Holdings (GKG SP, Not Rated) which recently invested in a Singapore-based nursing home and owns a 47.6% stake in Opal Aged Care in Australia. First REIT (FIRT SP, Hold) also has three Singapore-based assets in its portfolio, namely Pacific Healthcare Nursing Home I and II, and The Lentor Residence.

Figure 13: Market potential for private primary care is Figure 14: The number of nursing homes in Singapore saw little forecasted to outpace that for tertiary care growth over the past 10 years

Revenue (US$bn) 8.0 80 Title: Title: Source: Source: 7.0 70

6.0 60 Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 34 30 5.0 3.2 50 8.7% 32 32 33 32 CAGR 31 31 33 30 32 4.0 40 2.3 3.0 30 26 26 2.0 11.1% CAGR 3.5 20 28 27 31 31 30 30 30 31 31 1.0 2.3 10 11 13 0.0 1 1 5 6 0 2016E 2020F 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Primary Tertiary Public Not-for-Profit Private SOURCE: FROST & SULLIVAN 2017 SOURCE: MOH

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Navigating Singapore│Healthcare - Overall│January 7, 2018

#3 New guidelines on medical practitioners’ fees The Singapore Medical Association (SMA) first introduced the Guidelines on Fees in 1987, which covered 1,500 procedures broadly categorised into: i) General Consultation fees, ii) Professional Fees, and iii) Fees for Operations and Anaesthesia. The guidelines were removed in 2007 as they were deemed anti-competitive then by the Competition Commission of Singapore. Intended to improve price transparency for patients, the topic of developing new benchmarks for doctors’ fees resurfaced 10 years on, following recommendations made by the Health Insurance Task Force (Figures 15 – 16), which was set up in Feb 2016 to study Singapore’s health insurance, healthcare cost inflation and rising claims costs. Pending more details of the new benchmarks to be unveiled in 2018, we are overall neutral on this change, as we think it is unlikely to be a catalyst for Singapore listed healthcare companies. More initiatives are needed to complement the fee benchmarks to reap full benefits for the end consumers, in our view.

Figure 15: Summary of key findings and recommendations from Figure 16: Publication of fee structures in healthcare industry is 2016 study by Health Insurance Task Force a common practice internationally

Reasons for increasing IP claim incidence rates Anomalies in medical treatment and medical service charges, such as over- 1 charging, over-servicing and inappropriate medical intervention 2 Insurance product design Referral fees to persons like medical concierges, insurance 3 intermediaries, TPAs 4 Information asymmetry

Recommendations 1 Introducing medical fee benchmarks or guidelines 2 Clarification on existing process to surface inappropriate medical treatment

3 Enhancing insurance procedures and product features 4 Educating consumers

SOURCE: CIMB RESEARCH, HITF SOURCE: OLIVER WYMAN, HITF

What we foresee as potential implications for the industry …  We deem it less relevant for the primary care market, given that it is more homogeneous and recurring in nature. Patients are also more cognisant of pricing information and drug prescription.  Improves price transparency for highly specialised services, particularly useful for foreign patients to make more informed decisions, as well as insurance companies for their product design and pricing.  But may not be beneficial to end consumers. Existing medical practitioners charging below the fee benchmarks may take the opportunity to revise their charges higher; at the same time this may present little incentive to adjust prices below the recommended range, for fear of perceived quality discrepancy.  Younger doctors and new private practice entrants may use the lower range of fee benchmarks as a yardstick to set their prices.

Potential stock implications. Amongst the companies under our coverage, we suspect the impending changes to the Guidelines on Fees would have the biggest impact on Talkmed, a premier provider of medical oncology and palliative care in Singapore, whose doctors’ fees we believe are at the higher end of the market range (Figure 17). Raffles Medical Group might also face some pricing pressure, even though its treatment charges are still below the top tier of the private hospitals’ fees. On the other hand, a pure hospital operator like Parkway Hospitals (under IHH Healthcare) could be spared from this new implementation to some extent, as it does not recruit its own specialists. Greater price transparency could also boost medical tourism in Singapore, from which both Parkway Hospitals and Raffles Medical Group could benefit as overseas patients currently account for an estimated 30% of their total revenue. We think Q&M Dental and Health

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Management International (HMI) are unlikely to be negatively affected, given that they are already offering competitive pricing, and in the case of HMI, both its hospitals are based in Malaysia (Figures 18 – 20 ).

Figure 17: Comparison of average bill sizes for cancer therapy with drugs

Average bill size per patient visit (S$) 4,500 Title: 4041 Source: 4,000 3300 3,500 Please fill in the values above to have them entered in your report 3031 3,000 3000 2,500

2,000

1,500 1440 1,000

500 192 662

0 56 Day surgery (subsidised) @ Day surgery (private) @ MEH Ward B2 @ TTSH Talkmed NUH NUH: National University Hospital MEH: Mount Elizabeth Hospital TTSH: Tan Tock Seng Hospital SOURCE: CIMB RESEARCH, COMPANY, MOH

Figure 18: Comparison of room charges across hospitals

Parkway Raffles Regency Average inpatient charges Restructured Malkota Medical Hospitals Hospital Specialist hospitals(i) Centre (HMI)(iii) by room type (S$) (IHH)(ii) (RFMD)(ii) Hospital (HMI)(iii) Deluxe/ VIP or A1+equivalent na 876 919 187 127 1 Bedded or A1 equivalent 428 608 642 83 83 2 Bedded na 325 346 58 50 4 Bedded or B1 equivalent 241 258 281 33 33

Day surgery - for first 3 hours 90 94 na na

i) based on private non-subsidised rates ii) includes GST iii) based on FX of SGD1.00 = MYR 3.0

One third SOURCE:Half CIMB page RESEARCH, COMPANY,Two MOH thirds

Figure 19: Average bill sizes for the top 4 common procedures in Singapore (S$) Parkway Raffles Restructured (ii) Private Type of procedure (i) Hospitals Hospital hospitals hospitals (IHH) (RFMD) Colonoscopy screening 1,010 2,670 1,613 1,311 mostly day surgeries Cataract Surgery 2,974 4,861 5,068 na (unilateral) Removal of Gallbladder inpatient 3,118 13,366 11,475 na Knee replacement inpatient 8,732 17,678 17,058 na i) based on private non-subsidised rates ii) Average bill sizes based on 50th percentile SOURCE: CIMB RESEARCH, COMPANY, MOH

Figure 20: Average fees for dental procedures Average fee at Average fee at Unit of Dental procedure public private dental Q&M measurement institutions (S$) clinic (S$) Crowns (capping) Single unit 650 - 786 400 - 2140 na Full dentures Per arch 521 - 707 150 - 2140 na Impacted wisdom tooth surgery Per tooth 600 - 825 400 - 2140 From 535 Implants Per unit 1600 - 1944 2000 - 4815 From 2675 Orthodontics (braces) Two jaws, non-surgical 3000 - 4870 2000 - 10700 From 4066 Root Canal treatment - Anterior tooth Per tooth 272 - 353 400 - 856 na Root Canal treatment - Molar tooth Per tooth 678 - 815 400 - 1605 na Root Canal treatment - Pre-molar treatment Per tooth 424 - 501 400 - 1284 na Average fees at public and private institutions from MOH as of 20 April 2015 SOURCE: CIMB RESEARCH, COMPANY

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Outlook for Singapore Healthcare sector What catalysts lie ahead in 2018? Last year was a muted year for most healthcare stocks in Singapore, with averaging returns of -14.8% vs. +18.1% gain in STI (Figures 21 – 22). There were snippets of M&A action, including Singapore Medical Group’s (SMG SP, Not rated) purchase of paediatric clinics, OUE’s takeover of International Healthway Corporation (now known as OUE Lippo Healthcare), and Rowsley’s proposed acquisition of healthcare assets (Thomson Medical and TMC Life Sciences). We also saw mixed performance in medical tourism, with Raffles Medical Group reporting flat foreign patient numbers in 2017, while Parkway Pantai Singapore operations recorded 25% growth in patients from Indonesia and Indo-China.

We think 2018F could be another unexciting year for the healthcare sector with medical tourism likely to remain stable, barring a few key catalysts – we expect hospital operators to execute their North Asia expansion plans, specifically Chongqing (estimated in 4Q18F) for Raffles Medical Group, and Gleneagles HK (GHK) and Chengdu (2H18F) for IHH. We also believe M&As will continue to be a growth driver for most healthcare companies in Singapore.

Figure 21: Sector 2017 performance % Figure 22: Healthcare stocks 2017 performance %

Technology 107.2 TKMED 33.3 Gaming 44.8 SMG 32.2 Finance 30.0 FSSTI 18.1 Property 26.8 HC SURGICAL 13.8 REIT 20.6

FSSTI 18.1 ISEC 6.8

Transport 10.3 HMI 3.6 Capital Goods 8.3 IHH (9.3) Telco (1.5) QNM (14.0) Consumer (3.7) RFMD (21.7) Healthcare (14.8)

Commodities (29.7) SOG (25.1)

(50) 0 50 100 (50) (30) (10) 10 30 50

SOURCE: BLOOMBERG SOURCE: BLOOMBERG

Medical tourism – here to stay but hard to grow Singapore’s quality healthcare is internationally recognised – in 2014, it was ranked first for most efficient healthcare system, out of 51 countries, by Bloomberg. Its other credentials include second ranking in the world for healthcare outcomes according to The Economist Intelligence Unit in 2014, as well as the top global favourite medical tourism destination in PHD Chamber Medical and Wellness Tourism Report 2013. While Singapore healthcare sector is likely to maintain its international standing, its competitors in neighbouring countries like Malaysia and Thailand are fast catching up in terms of healthcare quality and international accreditation. The strong Singapore dollar (Figures 23 – 26) against regional currencies (with THB being the exception) and potential hike in goods and services tax (GST) remain as possible deterrents, but private healthcare groups are intensifying efforts to reach out to both new and existing overseas markets. Overall, we expect medical tourism in Singapore to see little growth in 2018F.

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Figure 23: SGD continues to strengthen against MYR Figure 24: Weakening SGD against THB in recent years

3.4 26.5 Title: Title: Source: Source: 26 3.2 25.5 Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 3 25

2.8 24.5

2.6 24

23.5 2.4 23 2.2 22.5

2 22 Jan/2012 Jan/2013 Jan/2014 Jan/2015 Jan/2016 Jan/2017 Jan/2012 Jan/2013 Jan/2014 Jan/2015 Jan/2016 Jan/2017

SGDMYR SGDTHB

SOURCE: CIMB RESEARCH, BLOOMBERG SOURCE: CIMB RESEARCH, BLOOMBERG

Figure 25: SGD gained 9% in strength against IDR in 2017 Figure 26: SGD appreciates 8% against VND in 2017 to return to pre-2014 level

11000 17500 Title: Title:

10500 Source: Source: 17000 10000 Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 9500 16500

9000 16000 8500 15500 8000

7500 15000

7000 14500 6500

6000 14000 Jan/2012 Jan/2013 Jan/2014 Jan/2015 Jan/2016 Jan/2017 Jan/2012 Jan/2013 Jan/2014 Jan/2015 Jan/2016 Jan/2017

SGDIDR SGDVND

SOURCE: CIMB RESEARCH, BLOOMBERG SOURCE: CIMB RESEARCH, COMPANY

Figure 27: Top medical tourism destinations by specialty

Country Specialties Mexico Weight-loss treatments and surgeries Singapore Cardiology, gastroenterology, oncology and organ transplants India Fertility care, orthopedic surgery, cardiac surgery, and organ transplants Thailand Cosmetic procedures Malaysia Fertility treatments, burn treatments, healthcare screenings Brazil Cosmetic procedures Turkey Cardiac care, cancer treatments, orthopedic care, laser treatments for vision Hungary Dentistry SOURCE: CNBC, PATIENTS BEYOND BORDERS

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Sector performance now depends on companies’ overseas delivery Since 2014, most healthcare companies in Singapore have ventured overseas to seek growth, as medical tourism slows in the face of rising competition from regional peers in Malaysia and Thailand. By leveraging their operating track record and established brand names, the likes of “Gleneagles”, “Raffles Medical”, “Q&M” and “Singapore Cancer Centre”, these companies seek to capitalise on growth opportunities in the developing markets (Figure 28).

Figure 28: List of notable overseas projects When Details Jul-14 Q&M Dental Group acquired 60% stake in Aoxin, a China-based dental hospital. Q&M Dental Group bought 51% stake in Aidite, a dental materials manufacturing company Aug-14 based in China. Mar-15 IHH purchased 51% stake of Continental Hospital in India Raffles Medical Group formed joint venture with Shanghai LuJiaZui Group to build 400-bed May-15 international hospital in Shanghai. Talkmed subscribed for 30% shareholdings in Hong Kong Integrated Oncology Centre Jun-15 Holdings, which operates the Hong Kong Integrated Oncology Centre (HKIOC). Raffles Medical Group bought 55% stake in MC Holdings (MCH), which owns 10 clinics in Aug-15 China, Vietnam and Cambodia. IHH announced joint venture with Singapore developer Perennial Real Estate Holdings to open Oct-15 a hospital in Chengdu. Raffles Medical Group announced land acquisition and development of tertiary hospital in Apr-17 Chongqing. Talkmed announced collaboration and signing of management contracts in Chongqing and Sep to Nov-17 Beijing. SOURCE: CIMB RESEARCH, COMPANY

In 2018, North Asia expansion plans will take centre stage for both IHH and Raffles Medical Group -- with continual ramp-up of Gleneagles HK (GHK) and targeted 4Q18 opening of 350-bed Chengdu (Figure 29) for the former, and the 2H18 opening of 700-bed Chongqing hospital (Figure 30) for the latter. Gestation from these new hospitals has largely been priced in, and we think the start-up costs for both Chongqing and Chengdu would be less extensive as compared to GHK, given i) the asset-light model for Chengdu hospital, and ii) the hospital beds will be opened in phases (vs. 500 beds all at once for GHK). Stronger-than-expected earnings delivery from their respective new hospital/s is a potential catalyst for both Raffles Medical Group and IHH, in our view.

Figure 29: Base case scenario for IHH's Gleneagles HK (FY19F Figure 30: Base case scenario for RFMD’s Chongqing hospital EBITDA breakeven) - RM0.13/shr (3 years for EBITDA breakeven) - S$0.14/shr

14% 15% 15% 27% 28% 13% Title: 400 15% 20% 22% 23% 24% 25% 26% 50% 330 Title: 15.0% 0% 11% Source: 9% Source: 0% 300 280 7% 10.0% 4% -50% Please fill in the values above to have them entered in your report 230 Please fill in the values above to have them 5.0%entered in your report 200 -100% -100% -1% 180 0.0% 100 -150% 130 Operational -5.0% 0 -200% by 2H18 -11% 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 80 -10.0% -250% (100) 30 -15.0% -300% (200) (20) -20.0% -350% 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 (300) (70) -25.0% -385% -400% -20% (400) -450% (120) -30.0%

EBITDA (RM m) EBITDA margins (%) EBITDA (RMB m) EBITDA margins (%)

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY

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Navigating Singapore│Healthcare - Overall│January 7, 2018

M&As still a driver for the healthcare sector In recent years, we saw a series of industry consolidation by several asset-light specialist groups, which commonly employ an acquisition strategy of majority stake purchase at 10-15x P/E multiples, in clinics that offer them diversified healthcare exposure, using a combination of cash and shares. Companies that fall within the “asset-light specialist” category (Figure 31) include Q&M Dental, Singapore Medical Group, Singapore O&G, ISEC Healthcare, Talkmed and HC Surgical Specialists. We expect this trend to sustain into 2018F, mainly for ISEC Healthcare (ISEC SP, Not rated) and HC Surgical Specialists (HSP SP, Not rated) which we deem as potential laggard plays. For companies like Singapore Medical Group (SMG SP, Not rated) and Singapore O&G (SOG SP, Not rated) which already had an acquisition spree earlier, 2018F could be the year of organic growth as they focus on improving operational efficiencies, extracting synergies and possibly hiring of new doctors.

Figure 31: Summary of main asset-light healthcare plays in Singapore Singapore Singapore HC Surgical ISEC Company name Medical TalkMed Q&M Dental O&G Specialists Healthcare Group Multi- disciplinary, obstetrician & including Key medical gynaecology, oncology and imaging and dental endoscopy opthalmology specialisations paediatrics and palliative care diagnostics, dermatology oncology and paediatrics.

At Lee Hung Ming Eye Foreign patients c.30% of c.50% of Joyce c.50% of na na centre, 25-30% % revenue Lim's patients revenue of patients is overseas

Net gearing % -13.5% -42.1% -104.5% 47.0% -91.3% -34.2% (last reported) SOURCE: CIMB RESEARCH, COMPANY

We also reckon this M&A fever could now spill over to asset-heavy hospital operators, especially among those which can replicate their earlier M&A success. In this case, IHH is well-positioned to pursue acquisitions in India as valuations of potential targets now look more attractive, and its recent issuance of US$500m senior perps could serve as a sizeable, timely war chest. HMI could similarly benefit from possible regional partnerships with the recent S$11m new share placement to Heliconia Capital Management, following their consolidation of minority interests in both Mahkota Medical Centre (MMC) and Regency Specialist Hospital (RSH). Lastly, we also highlight Rowsley (ROWS SP, Not rated) as a new “re-entrant” to Singapore healthcare landscape, and potentially interesting stock to watch out for.

Rowsley returns with Thomson Medical. On 18 Jul 2017, Rowsley announced its proposed acquisitions of a 100% stake in Thomson Medical and 70.36% in TMC Life Sciences (TMCLS), as it expands into healthcare business from a multidisciplinary real estate company. Thomson Medical was previously delisted from the Singapore Exchange in 2011, at which point it was valued at an estimated S$513m, according to past SGX filings. It has since grown from 11 specialist outpatient clinics in FY11 to 25 in FY16, doubling its revenues and EBITDA (Figures 23-24). Rowsley reported 9MFY12/17 net loss of S$10.6m and was in a net debt position as of end-Sep 2017. The company will be renamed Thomson Medical Group upon completion of the asset injections (subject to shareholders’ approval), potentially becoming the 2nd largest healthcare play on SGX. At S$1.6bn purchase consideration (S$1.64bn if include proposed acquisition of TMCLS warrants), this implies a FY8/17 P/E multiple of 48.8x (50x P/E) and 30.1x (30.8x) FY8/17 EBITDA for both target assets.

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Figure 32: Thomson Medical's FY16 revenue split (%) Figure 33: Thomson Medical’s EBITDA margin of 23-27% is in line with industry peers FYE Aug (S$m) 250 Title: 27.0% Title: Source: 26.7% Source: 26.0% 200 Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report

25.0% 42.6% 150 24.1% 24.0%

100 193.3 199.4 57.4% 177.2 23.1% 23.0%

50 22.0% 53.2 40.9 46.5 0 21.0% 2015 2016 2017

Hospital Specialist Revenue EBITDA EBITDA margin (%)

SOURCE: COMPANY SOURCE: COMPANY

Figure 34: Post-acquisition structure of Rowsley (ROWS SP, Not Rated), subject to shareholders’ approval

SOURCE: COMPANY

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Figure 35: Thomson Medical has over 38 years of experience in Figure 36: … with plans to expand into new specialties and open women and children’s health… more clinics

SOURCE: COMPANY SOURCE: COMPANY

Figure 37: TMC Life Sciences has a multi-disciplinary tertiary Figure 38:… with plans to expand bed capacity at Tropicana care hospital and is a leading provider of IVF services… Medical Centre and develop Thomson Iskandar Medical Hub

SOURCE: COMPANY SOURCE: COMPANY

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Valuation and Recommendations Maintain sector Neutral, with IHH as our top large cap pick and HMI our top small cap pick Overall, we think gestation from new hospital openings could weigh on near- term sentiment, but for large-cap hospital groups, such weaknesses are largely in the price. We are also wary of the sector valuation, with 12M rolling EV/EBITDA at 1 s.d. above 5-year historical mean, and 12M forward P/E multiple below the historical average (Figures 39 - 40). Stronger execution of overseas projects and synergistic M&As could revive interest and re-rate the sector, in our view.

Hence, we maintain our Neutral stance on the healthcare sector, and switch our large-cap top pick from Raffles Medical Group to IHH. We believe IHH is poised for strong earnings recovery over FY18-19F as GHK losses narrow on the back of patient load ramp-up, and its capex cycle is largely over. HMI remains our small-cap top pick for its robust operations and as a proxy for improving medical tourism in Malaysia. We continue to like Raffles Medical Group given its beaten-down share price and exposure to the China healthcare market in the longer term. Our Hold rating on Talkmed is unchanged in view of potential stock overhang in the short term arising from the suspension of its key doctor. We also keep Q&M Dental at Reduce despite its recent share price correction, as we see little excitement in its growth outlook, coupled with premium valuation vs peers.

Figure 39: Healthcare - 12-mth rolling EV/EBITDA (x) Figure 40: Healthcare - 12-mth fwd rolling FD core P/E (x) ($A$69:$H$89) 70.0 Title:

29.00 Source: 65.0

27.00 +1SD: 60.5x Please fill in the values above to have them entered in your report 60.0

25.00 +1SD: 24.9x 55.0 5-yr Ave (13-17): 22.7x 5-yr Ave (13-17): 52.0x 23.00 50.0

21.00 -1SD: 20.4x 45.0 -1SD: 43.4x

19.00 40.0

17.00 35.0

15.00 30.0 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17

Rolling EV/EBITDA (x) 12-mth Fwd Rolling FD Core P/E (x)

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS Aggregate of IHH, RFMD, HMI, QNM, TKMED Aggregate of IHH, RFMD, HMI, QNM, TKMED

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Figure 41: RFMD's 5-year historical forward EV/EBITDA trading Figure 42: RFMD's 5-year historical forward P/E trading band band

45.0x Title: Title: 31.0x Source: Source: 43.0x

29.0x 41.0x Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report +1 s.d. 26.9x 27.0x 39.0x +1 s.d. 37.7x

25.0x 37.0x average 23.3x 35.0x 23.0x average 33.5x 33.0x 21.0x -1 s.d. 19.8x 31.0x 19.0x -1 s.d. 29.3x 29.0x

17.0x 27.0x

15.0x 25.0x

Forward EV/EBITDA Average +1 s.d. -1 s.d. Forward core P/E Average +1 s.d. -1 s.d.

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG

Figure 43: IHH's 5-year historical forward EV/EBITDA trading Figure 44: IHH's 5-year historical forward P/E trading band band

80.0x Title: Title: 29.0x Source: Source: 75.0x

27.0x 70.0x Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report +1 s.d. 25.8x +1 s.d. 66.3x 65.0x 25.0x 60.0x average 56.2x 23.0x average 22.4x 55.0x

21.0x 50.0x -1 s.d. 46.1x -1 s.d. 19.0x 45.0x 19.0x 40.0x 17.0x 35.0x

15.0x 30.0x

Forward EV/EBITDA Average +1 s.d. -1 s.d. Forward core P/E Average +1 s.d. -1 s.d.

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG

Figure 45: HMI's 4-year historical forward EV/EBITDA trading Figure 46: HMI's 4-year historical forward P/E trading band band

18.0x 45.0x Title: Title: Source: Source: 16.0x 40.0x Please fill in the values above to have them entered in your report 14.0x +1 s.d. 13.2x Please fill in the values above to have them entered in your report 35.0x +1 s.d. 32.1x 12.0x 30.0x 10.0x average 9.0x average 24.5x 25.0x 8.0x 20.0x 6.0x -1 s.d. 4.8x 15.0x -1 s.d. 16.8x 4.0x

2.0x 10.0x

0.0x 5.0x

Forward EV/EBITDA Average +1 s.d. -1 s.d. Forward core P/E Average +1 s.d. -1 s.d.

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Figure 47: TKMED's 4-year historical forward EV/EBITDA trading Figure 48: TKMED's 4-year historical forward P/E trading band band

Title: 30.0x 40.0x Title: Source: Source:

35.0x 25.0x Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report

30.0x 20.0x +1 s.d. 18.7x +1 s.d. 25.1x 25.0x average 14.7x 15.0x average 20.3x 20.0x -1 s.d. 10.8x 10.0x -1 s.d. 15.6x 15.0x

5.0x 10.0x

Forward EV/EBITDA Average +1 s.d. -1 s.d. Forward core P/E Average +1 s.d. -1 s.d.

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG

Figure 49: Q&M's 5-year historical forward EV/EBITDA trading Figure 50: Q&M's 5-year historical forward P/E trading band band

30.0x Title: Title: 75.0x Source: Source: 28.0x

26.0x Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report +1 s.d. 23.9x 65.0x 24.0x

22.0x 55.0x +1 s.d. 49.2x 20.0x average 18.2x 45.0x average 38.7x 18.0x

16.0x 35.0x -1 s.d. 28.2x 14.0x -1 s.d. 12.4x 25.0x 12.0x

10.0x 15.0x

Forward EV/EBITDA Average +1 s.d. -1 s.d. Forward core P/E Average +1 s.d. -1 s.d.

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Historical share price drivers for companies under our coverage

Figure 51: Historical share price chart for IHH over 2013 - 2017

IHH share price (MYR) Title: 7.00 Please fill in the values above to have them entered in your report 6.50 -16% +18% 6.00 +24% Announced in 5.50 FY13 EPS Oct-15 China JV Weak 2-4QFY16 results, +31% for Chengdu 5.00 Mar-13: mainly due to FX losses, Announced start-up costs from GHK 4.50 entry in HK +42% and one-offs. FY14 EPS +27% 4.00 Mar-15: purchased 51% stake in India's 3.50 Adopt formal Continental hospitals dividend policy of 3.00 at least 20% payout 2.50 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 SOURCES: CIMB, COMPANY REPORTS

Figure 52: Historical share price chart for RFMD over 2015 - 2017

RFMD share price (S$) Title: 1.80 Announced new 400- Weak 2Q15 Muted FY16 Source: 1.70 bed Shanghai hospital earnings: earnings +1.3% +2.2% Please fill in the values above to have them entered in your report 1.60 +14% Weak 1Q17 1.50 -12% +6% earnings +0.1%, 2Q17 +0.7% +15% 1.40 -20% 1.30 4Q15 earnings +11.6% 1.20 Weak 3Q15 Announced new 700- -25% earnings +3.9% bed Chongqing hospital 1.10

1.00

0.90

SOURCES: CIMB, COMPANY REPORTS

Figure 53: Historical share price chart for HMI over 2015 - 2017

HMI share price (S$) Title: 0.80 Source:

0.70 +22% +9% Please fill in the values above to have them entered in your report

0.60

MI consolidation S$11m new 0.50 Uneventful share price performance, +88% for S$183.2m share placement largely deterred by substantial MI announced. to Heliconia 0.40 -37% dilution, and lack of investor awareness

0.30 Consistently improving quarterly results, driven 0.20 Declined consideration by topline and gross margin expansion of interest for MMC 0.10

SOURCES: CIMB, COMPANY REPORTS

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Figure 54: Historical share price chart for Talkmed from IPO listing to 2017

TKMED share price (S$) Title: 1.00 Announced 1-for- Please fill in the values above to have them entered in your report 0.90 1 bonus issue 0.80 +44% 0.70 -20%

0.60

0.50 SMC levies 8- 0.40 mth suspension on key doctor 0.30

0.20

0.10

0.00 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 SOURCES: CIMB, COMPANY REPORTS

Figure 55: Historical share price chart for Q&M over 2013 - 2017

QNM share price (S$) Title: 1.10 Source: Lifting of Partial lifting of 1.00 moratorium for moratorium QMH restructuring 0.90 -22% Please fill in the values above to have them entered in your report 4QFY14 core net +88% 0.80 profit +114% -20% 0.70 yoy, +52% qoq 51% stake -33% 0.60 acquisition +16% of Aidite 2QFY15 core net 1QFY17 core 0.50 +33% profit -34% qoq net profit +4% yoy, +95% qoq 0.40 +43% Proposed spin-off 0.30 of Aidite and Strong 3QFY14 core Aoxin, with 0.20 Purchased 60% net profit +55% yoy, acquisition spree stake of Aoxin +98% qoq 0.10 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

SOURCES: CIMB, COMPANY REPORTS

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Figure 56: Peer comparison

Bloomberg Price Target Price Market Cap Core P/E (x) 3-year EPS P/BV (x) Recurring ROE (%) EV/EBITDA (x) Dividend Yield (%) Company Ticker Recom. (lcl curr) (lcl curr) (US$ m) CY17F CY18F CAGR (%) CY17F CY18F CY17F CY18F CY17F CY18F CY17F CY18F SG Asset-light aggregators Singapore Medical Group Ltd SMG SP Not rated 0.58 na 196 27.4 19.8 56.2 4.0 3.1 21.8% 17.8% 19.0 14.3 na na Talkmed Group Ltd TKMED SP HOLD 0.70 0.68 688 29.1 25.9 1.8 13.1 11.9 45.5% 48.0% 22.3 19.8 2.7% 3.1% Singapore O&G Ltd SOG SP Not rated 0.44 na 158 24.4 20.0 10.3 5.1 4.9 20.8% 23.7% 17.4 15.3 3.4% 4.1% ISEC Healthcare Ltd ISEC SP Not rated 0.31 na 121 na na na na na na na na na na na HC Surgical Specialists Ltd HSP SP Not rated 0.73 na 82 70.4 na na na na na na na na na na Q&M Dental Group Singapore Ltd QNM SP REDUCE 0.65 0.61 389 35.6 32.5 15.0 4.2 4.0 11.9% 12.6% 27.9 25.0 1.4% 1.5% Simple average 37.1 25.0 20.8 4.2 4.0 26.5% 26.4% 20.9 18.3 2.5% 2.9%

SG Hospitals Health Management International HMI SP Add 0.67 0.83 420 38.0 25.9 37.0 7.9 5.9 21.1% 25.9% 18.9 15.4 0.6% 0.8% Raffles Medical Group RFMD SP Add 1.12 1.24 1,494 28.4 31.2 (7.5) 2.8 2.7 9.9% 8.9% 22.6 23.6 1.8% 1.8% IHH Healthcare Bhd IHH MK ADD 5.82 7.06 11,995 71.0 52.7 12.8 1.9 1.9 2.9% 4.0% 25.7 20.2 0.4% 0.4% Simple average 45.8 36.6 14.1 6.0 5.4 11.3% 12.9% 22.4 19.7 0.9% 1.0%

Regional Peers KPJ Healthcare KPJ MK Hold 0.985 1.09 1,051 28.3 25.2 7.4 2.9 2.7 9.9% 11.0% 13.1 11.4 1.8% 1.8% Bangkok Dusit Med Service BDMS TB Add 20.90 25.20 10,062 40.3 35.7 8.4 5.2 4.9 13.0% 14.2% 26.6 23.2 1.3% 1.6% Bumrungrad Hospital BH TB Reduce 192.50 191.00 4,359 35.7 33.6 9.1 8.5 7.6 24.3% 23.9% 24.4 21.8 1.4% 1.5% Bangkok Chain Hospital BCH TB Add 15.60 19.20 1,209 41.7 35.0 19.3 7.4 6.7 17.8% 20.2% 22.2 19.1 1.2% 1.4% Siloam International Hospitals SILO IJ Add 8700 12,100 1,054 140.2 120.6 8.7 2.2 2.2 1.8% 1.8% 11.1 9.3 0.0% 0.0% Mitra Keluarga Karyasehat MIKA IJ Hold 1745 2,100 1,893 35.8 34.5 5.0 6.7 6.4 19.4% 19.0% 26.1 24.1 2.0% 2.1% Simple average 53.7 51.9 10.1 5.4 5.0 15.3% 15.8% 22.1 19.5 1.2% 1.3%

Overall simple average 45.5 37.8 15.0 5.9 5.3 17.7% 18.4% 21.8 19.2 1.7% 2.0%

SOURCE: CIMB RESEARCH, COMPANY, BLOOMBERG (AS OF 5 JAN 2018)

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Navigating Singapore│Healthcare - Overall│January 7, 2018

Company Briefs

24

Hospitals│Singapore│January 7, 2018

Company Brief

Singapore Health Management International ADD (no change) Affordable care goes a long way Consensus ratings*: Buy 5 Hold 0 Sell 0 ■ Improving medical tourism and development of CoEs to drive earnings growth.

Current price: S$0.67 ■ Unlike its bigger cap peers, HMI does not face any near-term gestation costs, and Target price: S$0.83 capacity is not a limiting factor. ■ Maintain Add with DCF-based TP of S$0.83. Key catalyst is synergistic M&As. Previous target: S$0.83 Up/downside: 24.8% Beneficiary of growing medical tourism in Malaysia CIMB / Consensus: 0.9% ● HMI owns 2 hospitals in Malaysia, namely the Mahkota Medical Centre (MMC) in Malacca and Regency Specialist Hospital (RSH) in Johor. With a combined licensed Reuters: HMIH.SI bed capacity of 506, HMI is one of the top 5 private hospital operators in Malaysia with Bloomberg: HMI SP approximately 10% market share of the nation’s medical tourism. Market cap: US$419.7m ● Backed by its 20-year operating history and the affordability of medical treatments S$557.1m relative to neighbouring countries, we believe the improving connectivity links by new Average daily turnover: US$0.30m AirAsia direct flights would drive higher patient load for the hospitals. S$0.40m ● The RM30m allocation in Malaysia’s 2018 Budget and additional initiatives to promote Current shares o/s 820.9m medical tourism by the Malaysia Healthcare Travel Council (MHTC) also bode well for Free float: 45.0% the group, in our view. Foreign patients currently represent c.24% of its total patient *Source: Bloomberg mix.

Capacity not a constraint for both hospitals Price Close Relative to FSSTI (RHS) 0.750 104.0 ● MMC currently has 266 operational beds (licensed capacity of 288) and will add 30+ 0.700 99.0 beds in FY18 to cope with higher patient demand, by reallocating space from non- 0.650 94.0 clinical services. MMC also has available land bank that could possibly be developed 0.600 89.0 for hospital extension. 0.550 84.0 0.500 79.0 10 ● Meanwhile, there are 166 operational beds at RSH, with plans to increase the capacity to 200 in FY18. Development for an extension block (RM160m capex) is also 5 underway, which will eventually make RSH a 500-licensed bed hospital upon

Vol m Vol completion in FY21. Jan-17 Apr-17 Jul-17 Oct-17 Source: Bloomberg Patient load and average bill sizes on upward trend ● MMC and RSH continue to attract strong patient volumes, both local and foreign Price performance 1M 3M 12M (mainly Indonesians), recording 5.4% yoy growth in 1QFY18. Absolute (%) -3.6 2.3 2.3 ● We also saw higher average inpatient and outpatient bill sizes in 1QFY18, increasing Relative (%) -5.1 -4.7 -15.8 3.6% and 12.2% yoy respectively, thanks to more complex surgeries, diagnostics services and lab tests. We expect the development of more centres of excellence Major shareholders % held (CoEs) to lead to growth in bill sizes and better margins. Nam See Investment P 52.4 Kabouter Management 8.3 Improved shareholder base, but trading liquidity still an issue Way Mun Cheah 2.8 ● In 2017, HMI welcomed a new shareholder, Heliconia Capital Management (a Insert subsidiary of Temasek) via a S$11m new share placement. Apart from a stronger shareholder base, we think this partnership could accelerate the group’s regional expansion plans. ● We continue to like the stock for its quality assets, growth potential and cheaper valuation of 14.9x CY18 EV/EBITDA (vs. industry average of 18.8x). Maintain Add with a DCF-based target price of S$0.83. ● Downside risks include unfavourable FX movements, intensifying competition and low trading liquidity. We see synergistic M&As and market share gains in Malaysia’s medical tourism as re-rating catalysts.

Financial Summary Jun-16A Jun-17A Jun-18F Jun-19F Jun-20F Revenue (RMm) 397.8 435.8 480.9 532.6 591.4 Operating EBITDA (RMm) 85.3 84.6 108.6 123.1 138.9 Net Profit (RMm) 22.86 32.07 59.23 69.44 79.22 Core EPS (RM) 0.036 0.034 0.071 0.083 0.095 Core EPS Growth (26%) (5%) 113% 16% 14% FD Core P/E (x) 57.61 60.64 28.46 24.52 21.49 DPS (RM) 0.008 0.010 0.014 0.017 0.019 Dividend Yield 0.37% 0.50% 0.71% 0.83% 0.94% Analyst(s) EV/EBITDA (x) 13.43 17.70 15.90 13.91 12.15 P/FCFE (x) 23.37 NA NA 33.95 36.71 NGOH Yi Sin Net Gearing (16.0%) 51.6% 25.8% 11.2% 2.6% T (65) 6210 8604 P/BV (x) 6.91 9.75 6.63 5.40 4.46 E [email protected] ROE 13.1% 14.0% 28.1% 24.6% 23.1% CIMB/consensus EPS (x) 0.99 1.01 1.03

SOURCE: COMPANY DATA, CIMB FORECASTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform

Hospitals│Singapore│Health Management International│January 7, 2018

BY THE NUMBERS

Profit & Loss Balance Sheet

(RMm) Jun-17A Jun-18F Jun-19F Jun-20F (RMm) Jun-17A Jun-18F Jun-19F Jun-20F Total Net Revenues 437.9 480.9 532.6 591.4 Total Cash And Equivalents 76.8 50.2 88.4 120.9 Gross Profit 145.9 159.4 176.7 195.8 Total Debtors 44.9 80.4 73.6 80.5 Operating EBITDA 84.6 108.6 123.1 138.9 Inventories 13.6 16.3 17.7 19.4 Depreciation And Amortisation (20.1) (22.3) (24.4) (26.8) Total Other Current Assets 3.2 3.2 3.2 3.2 Operating EBIT 64.5 86.3 98.7 112.1 Total Current Assets 138.5 150.1 183.0 224.0 Financial Income/(Expense) (3.8) (5.2) (3.5) (3.6) Fixed Assets 278.6 321.3 361.9 400.1 Pretax Income/(Loss) from Assoc. 1.3 0.0 0.0 0.0 Total Investments 0.0 0.0 0.0 0.0 Non-Operating Income/(Expense) 0.0 0.0 0.0 0.0 Intangible Assets 0.0 0.0 0.0 0.0 Profit Before Tax (pre-EI) 62.1 81.1 95.1 108.5 Total Other Non-Current Assets 0.5 0.5 0.5 0.5 Exceptional Items 11.5 0.0 0.0 0.0 Total Non-current Assets 279.0 321.8 362.3 400.6 Pre-tax Profit 73.5 81.1 95.1 108.5 Short-term Debt 71.9 71.9 71.9 71.9 Taxation (19.8) (21.9) (25.7) (29.3) Current Portion of Long-Term Debt Exceptional Income - post-tax Total Creditors 67.7 85.9 94.3 100.8 Profit After Tax 53.7 59.2 69.4 79.2 Other Current Liabilities 8.0 8.0 8.0 8.0 Minority Interests (21.6) 0.0 0.0 0.0 Total Current Liabilities 147.7 165.8 174.2 180.7 Preferred Dividends Total Long-term Debt 91.9 43.7 51.2 58.7 FX Gain/(Loss) - post tax Hybrid Debt - Debt Component Other Adjustments - post-tax Total Other Non-Current Liabilities 0.0 0.0 0.0 0.0 Net Profit 32.1 59.2 69.4 79.2 Total Non-current Liabilities 91.9 43.7 51.2 58.7 Recurring Net Profit 23.7 59.2 69.4 79.2 Total Provisions 9.3 9.3 9.3 9.3 Fully Diluted Recurring Net Profit 23.7 59.2 69.4 79.2 Total Liabilities 248.9 218.8 234.7 248.7

Shareholders' Equity 168.6 253.1 310.6 376.0 Minority Interests 0.0 0.0 0.0 0.0 Total Equity 168.6 253.1 310.6 376.0

Cash Flow Key Ratios

(RMm) Jun-17A Jun-18F Jun-19F Jun-20F Jun-17A Jun-18F Jun-19F Jun-20F EBITDA 84.63 108.59 123.07 138.91 Revenue Growth 9.5% 10.3% 10.8% 11.0% Cash Flow from Invt. & Assoc. Operating EBITDA Growth (0.8%) 28.3% 13.3% 12.9% Change In Working Capital (1.25) (20.12) 13.81 (2.12) Operating EBITDA Margin 19.4% 22.6% 23.1% 23.5% (Incr)/Decr in Total Provisions 2.07 0.00 0.00 0.00 Net Cash Per Share (RM) (0.11) (0.08) (0.04) (0.01) Other Non-Cash (Income)/Expense 7.58 0.00 0.00 0.00 BVPS (RM) 0.21 0.30 0.37 0.45 Other Operating Cashflow 1.24 0.00 0.00 0.00 Gross Interest Cover 11.44 12.05 17.82 19.98 Net Interest (Paid)/Received (3.82) (5.16) (3.54) (3.61) Effective Tax Rate 27.0% 27.0% 27.0% 27.0% Tax Paid (15.68) (21.91) (25.68) (29.30) Net Dividend Payout Ratio 39.9% 20.1% 20.0% 20.0% Cashflow From Operations 74.77 61.40 107.66 103.88 Accounts Receivables Days 42.85 47.57 52.78 47.69 Capex (10.62) (65.00) (65.00) (65.00) Inventory Days 17.25 16.92 17.42 17.15 Disposals Of FAs/subsidiaries 0.05 0.00 0.00 0.00 Accounts Payables Days 91.90 87.20 92.38 90.23 Acq. Of Subsidiaries/investments (217.88) 0.00 0.00 0.00 ROIC (%) 37.4% 32.6% 30.1% 31.6% Other Investing Cashflow 0.00 0.00 0.00 0.00 ROCE (%) 21.4% 24.5% 24.5% 23.8% Cash Flow From Investing (228.45) (65.00) (65.00) (65.00) Return On Average Assets 11.5% 14.5% 14.3% 14.2% Debt Raised/(repaid) 113.89 (48.20) 7.50 7.50 Proceeds From Issue Of Shares 61.41 33.43 0.00 0.00 Shares Repurchased 0.00 0.00 0.00 0.00 Dividends Paid (15.68) (8.21) (11.93) (13.89) Preferred Dividends Other Financing Cashflow (0.71) 0.00 0.00 0.00 Cash Flow From Financing 158.91 (22.99) (4.43) (6.39) Total Cash Generated 5.24 (26.59) 38.24 32.50 Free Cashflow To Equity (39.78) (51.81) 50.16 46.38 Free Cashflow To Firm (148.03) 3.56 48.20 44.50

12-mth Fwd FD P/E (x) Key Drivers

48 Jun-17A Jun-18F Jun-19F Jun-20F No. Of Patient Admissions (m P.a.) 445.1 468.1 493.3 520.9 43 Revenue Per Patient Bed (RM) 7,342.8 7,691.1 8,075.7 8,479.4 38 Occupancy Rate Of Beds (%) 62.8% 62.5% 60.6% 60.4% 33 Average Length Of Stay (days) N/A N/A N/A N/A 28 Beds Opened (units) N/A N/A N/A N/A 23 Bed Turnover A Year (x) N/A N/A N/A N/A 18 % of fgn patients to patient load N/A N/A N/A N/A 13 8 3 Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F

Health Management International IHH Healthcare Bhd KPJ Healthcare Raffles Medical Group

SOURCE: CIMB RESEARCH, COMPANY DATA

26

Hospitals│Malaysia│January 7, 2018 Shariah Compliant

Company Brief

Malaysia IHH Healthcare Bhd ADD (no change) Expanding opportunities, consolidating strengths Consensus ratings*: Buy 13 Hold 11 Sell 2 ■ We think the worst could be over for the newly-opened Gleneagles HK, given

Current price: RM5.82 improving ramp-up and narrowing start-up losses. Target price: RM7.06 ■ Strong Singapore and Malaysia hospital operations provide a sustainable earnings base for the group, underpinned by favourable macro trends. Previous target: RM6.36 ■ Expansion in China and India could be IHH’s next growth phase. Maintain Add. Up/downside: 21.4% CIMB / Consensus: 12.3% Resilient home operations ● Revenue intensity and patient volume for IHH’s home operations continue to climb. As Reuters: IHHH.KL of 9M17, Singapore hospitals saw an overall 2.1% increase in inpatient admissions Bloomberg: IHH MK and 7.9% increase in revenue per inpatient admission. Malaysia hospitals recorded Market cap: US$11,995m 2.2% higher inpatient admissions, and 11.1% yoy growth in revenue per inpatient RM47,952m admission. Average daily turnover: US$4.83m ● The RM30m allocation in Malaysia’s 2018 Budget and additional initiatives to promote RM19.95m medical tourism by the Malaysia Healthcare Travel Council (MHTC) could bode well Current shares o/s 8,239m for the group as well, in our view. Foreign patients currently represent c.30% and 5% Free float: 21.0% of its Singapore and Malaysia patient volumes, respectively. *Source: Bloomberg GHK a near-term drag, but expect strong contributions post FY18F

● 2017 has largely been a disappointing year for IHH, in terms of both share price and Price Close Relative to FBMKLCI (RHS) bottom line, as the opening of two large flagship hospitals in Mar 2017 – Gleneagles

6.40 100.8 HK (GHK) and Acibadem Altunizade, weighed on overall profitability. A weaker Turkish lira against the ringgit did not help either. 5.90 90.4 ● The bright spot lies in GHK’s narrowing quarterly EBITDA losses, helped by i) a

5.40 80.0 gradual shift from ‘bread and butter’ services to higher intensity specifications, ii) 150 increasing line-up of insurance providers, and iii) greater awareness in the domestic 100

50 market. We expect an EBITDA breakeven in FY19F. Vol m Vol Jan-17 Apr-17 Jul-17 Oct-17 Turning to North Asia and India for growth Source: Bloomberg ● IHH remains on track to penetrate into China, starting with Chengdu (350-bed), Nanjing (70-bed) and Shanghai (450-bed), from late-2018 to 2020. We believe these Price performance 1M 3M 12M are long-term growth potentials for the group, as it taps into the growing private Absolute (%) 3.2 2.3 -9.1 healthcare demand of China’s large population. Relative (%) -2.2 -1 -18.6 ● Pre-opening and start-up costs for these new hospitals are unlikely to be as extensive as those of GHK, due to the phased opening of hospital beds, smaller ownership Major shareholders % held stakes and more asset-light approach (for Chengdu). Khazanah Nasional Bhd 41.1 ● Meanwhile, India is still a small contributor of IHH’s overall earnings (9M17: RM4m). Mitsui & Co Ltd 18.0 But the recent issuance of US$500m senior perps (4.25%) could be a war chest to Employees Provident Fund 9.6 pursue more aggressive inorganic growth in India, especially with more attractive Insert valuations of potential targets, in our view. Maintain Add with a higher SOP-based TP of RM7.06 ● We believe the worst could be over for GHK, and expect sequential earnings improvement post 3Q17. Any share price weakness would be an attractive entry point to accumulate the stock. ● We cut our FY18-19F EPS on higher financing expenses, but maintain Add on IHH with a higher SOP-based target price of RM7.06 as we roll forward our valuation to end CY19F. ● Better-than-expected earnings delivery of GHK and synergistic M&As are potential stock catalysts. Downside risks to our Add call include unfavourable currency movements against the ringgit and poor overseas execution.

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F Revenue (RMm) 8,455 10,022 11,114 12,580 14,275 Operating EBITDA (RMm) 2,219 2,189 2,260 2,699 3,286 Net Profit (RMm) 899 866 675 910 1,206 Core EPS (RM) 0.11 0.11 0.08 0.11 0.15 Core EPS Growth 27.0% (3.9%) (22.2%) 34.8% 32.6% FD Core P/E (x) 53.08 55.30 71.01 52.71 39.75 DPS (RM) 0.030 0.030 0.021 0.024 0.031 Dividend Yield 0.52% 0.52% 0.36% 0.42% 0.54% EV/EBITDA (x) 24.60 25.05 23.91 20.04 16.38 P/FCFE (x) NA 1,818 51 238 71 Analyst(s) Net Gearing 19.3% 21.1% 8.1% 7.8% 6.0% NGOH Yi Sin P/BV (x) 2.14 2.18 1.94 1.88 1.81 T (65) 6210 8604 ROE 4.30% 3.91% 3.03% 3.97% 5.06% % Change In Core EPS Estimates 0.00% (6.47%) (5.66%) E [email protected] CIMB/consensus EPS (x) 0.98 0.90 0.95

SOURCE: COMPANY DATA, CIMB FORECASTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform

Hospitals│Malaysia│IHH Healthcare Bhd│January 7, 2018

BY THE NUMBERS

Profit & Loss Balance Sheet

(RMm) Dec-16A Dec-17F Dec-18F Dec-19F (RMm) Dec-16A Dec-17F Dec-18F Dec-19F Total Net Revenues 10,022 11,114 12,580 14,275 Total Cash And Equivalents 2,443 5,355 5,356 5,769 Gross Profit 4,336 4,601 5,158 5,710 Total Debtors 1,442 1,522 1,723 1,955 Operating EBITDA 2,189 2,260 2,699 3,286 Inventories 253 255 295 334 Depreciation And Amortisation (800) (985) (1,095) (1,184) Total Other Current Assets 461 461 461 461 Operating EBIT 1,389 1,275 1,605 2,103 Total Current Assets 4,599 7,594 7,836 8,520 Financial Income/(Expense) (528) (456) (224) (224) Fixed Assets 13,141 14,408 15,563 16,628 Pretax Income/(Loss) from Assoc. 17 1 (10) (50) Total Investments 3,194 3,195 3,185 3,135 Non-Operating Income/(Expense) 0 0 0 0 Intangible Assets 13,566 13,502 13,441 13,381 Profit Before Tax (pre-EI) 878 820 1,370 1,828 Total Other Non-Current Assets 2,689 1,429 1,429 1,429 Exceptional Items Total Non-current Assets 32,589 32,534 33,618 34,573 Pre-tax Profit 878 820 1,370 1,828 Short-term Debt 634 634 634 634 Taxation (270) (197) (307) (391) Current Portion of Long-Term Debt Exceptional Income - post-tax 254 0 0 0 Total Creditors 2,612 2,963 3,426 3,888 Profit After Tax 862 623 1,063 1,437 Other Current Liabilities 395 395 395 395 Minority Interests 4 90 (64) (141) Total Current Liabilities 3,642 3,993 4,456 4,918 Preferred Dividends 0 (38) (89) (89) Total Long-term Debt 6,853 6,853 6,853 6,853 FX Gain/(Loss) - post tax Hybrid Debt - Debt Component Other Adjustments - post-tax Total Other Non-Current Liabilities 1,733 1,733 1,733 1,733 Net Profit 866 675 910 1,206 Total Non-current Liabilities 8,586 8,586 8,586 8,586 Recurring Net Profit 866 675 910 1,206 Total Provisions 1,067 1,067 1,067 1,067 Fully Diluted Recurring Net Profit 866 675 910 1,206 Total Liabilities 13,295 13,646 14,109 14,571

Shareholders' Equity 21,986 24,664 25,463 26,500 Minority Interests 1,907 1,817 1,882 2,023 Total Equity 23,893 26,481 27,345 28,523

Cash Flow Key Ratios

(RMm) Dec-16A Dec-17F Dec-18F Dec-19F Dec-16A Dec-17F Dec-18F Dec-19F EBITDA 2,189 2,260 2,699 3,286 Revenue Growth 18.5% 10.9% 13.2% 13.5% Cash Flow from Invt. & Assoc. Operating EBITDA Growth (1.3%) 3.2% 19.5% 21.7% Change In Working Capital (147) 268 222 190 Operating EBITDA Margin 21.8% 20.3% 21.5% 23.0% (Incr)/Decr in Total Provisions Net Cash Per Share (RM) (0.61) (0.26) (0.26) (0.21) Other Non-Cash (Income)/Expense BVPS (RM) 2.67 2.99 3.09 3.22 Other Operating Cashflow 95 0 0 0 Gross Interest Cover 2.11 2.43 4.29 5.62 Net Interest (Paid)/Received (657) (524) (374) (374) Effective Tax Rate 30.7% 24.0% 22.4% 21.4% Tax Paid (204) (197) (307) (391) Net Dividend Payout Ratio 40.3% 25.4% 22.0% 21.5% Cashflow From Operations 1,276 1,807 2,240 2,711 Accounts Receivables Days 48.86 48.67 47.09 47.03 Capex (2,084) (2,189) (2,189) (2,189) Inventory Days 15.17 14.22 13.51 13.40 Disposals Of FAs/subsidiaries Accounts Payables Days 166.3 156.3 157.1 155.9 Acq. Of Subsidiaries/investments (51) 0 0 0 ROIC (%) 5.04% 4.47% 5.69% 7.23% Other Investing Cashflow 464 1,328 150 150 ROCE (%) 4.70% 3.98% 4.95% 6.17% Cash Flow From Investing (1,671) (860) (2,039) (2,039) Return On Average Assets 3.13% 2.79% 3.16% 3.93% Debt Raised/(repaid) 421 0 0 0 Proceeds From Issue Of Shares 2 0 0 0 Shares Repurchased Dividends Paid (247) (171) (200) (259) Preferred Dividends Other Financing Cashflow (22) 1,612 (374) (374) Cash Flow From Financing 154 1,441 (574) (633) Total Cash Generated (241) 2,388 (373) 38 Free Cashflow To Equity 26 947 201 672 Free Cashflow To Firm 262 1,471 576 1,046

12-mth Fwd FD P/E (x) Key Drivers 50 Dec-16A Dec-17F Dec-18F Dec-19F 45 No. Of Patient Admissions (m P.a.) N/A N/A N/A N/A 40 Revenue Per Patient Bed (RM) N/A N/A N/A N/A 35 Occupancy Rate Of Beds (%) 68.0% 68.3% 68.3% 68.3% 30 Average Length Of Stay (days) N/A N/A N/A N/A 25 Beds Opened (units) 5,591.0 5,337.6 5,483.9 5,636.0 Bed Turnover A Year (x) N/A N/A N/A N/A 20 % of fgn patients to patient load N/A N/A N/A N/A 15 10 5 0 Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F

Raffles Medical Group KPJ Healthcare IHH Healthcare Bhd

SOURCE: CIMB RESEARCH, COMPANY DATA

28

Health Care Providers & Svs│Singapore│January 7, 2018

Company Brief

Singapore Q&M Dental Group REDUCE (no change) More bite-sized growth to come Consensus ratings*: Buy 0 Hold 2 Sell 1 ■ Leading private dental healthcare provider to continue its pursuit of acquisitions.

Current price: S$0.65 ■ Our FY17-19F EPS fall by 4.9-8.7% to reflect lower earnings contribution from Aoxin Target price: S$0.61 and Aidite, post their spin-offs. ■ Maintain Reduce with a slightly higher TP of S$0.61 (28x P/E) as we roll forward our Previous target: S$0.60 valuation to end-CY19F. Up/downside: -6.9% CIMB / Consensus: -0.8% Leading private dental healthcare provider across Asia ● Q&M is a leading private dental healthcare provider with presence across Singapore, Reuters: QMDT.SI Malaysia and China. It offers quality services at competitive pricing, and boasts of a Bloomberg: QNM SP wide network of clinics at strategic locations. Market cap: US$389.2m ● In Singapore, it operates 72 dental clinics, four medical clinics and an aesthetic centre, S$516.6m supported by over 230 qualified dentists. Based on over 300k patient visits a year, Average daily turnover: US$0.25m Q&M commands c.9% market share of the overall Singapore dental healthcare S$0.33m market. Current shares o/s 794.9m ● The group also owns nine dental clinics and a dental supplies and equipment Free float: 39.0% distribution company in Malaysia, as well as a dental clinic in China. *Source: Bloomberg Extracting value from spin-offs ● In Jul 2014, Q&M bought a 60% stake in Aoxin, a Liaoning-based primary dental care Price Close Relative to FSSTI (RHS) 0.800 106.0 group with over 20 years of operating history. The company was subsequently spun off onto the SGX Catalist board in Aug 2017, as Aoxin Q&M Dental Group, thus 0.700 92.7 reducing Q&M’s stake to c.44%. Aoxin Q&M Dental Group targets acquisitions of large 0.600 79.3 dental hospitals and further penetration into north eastern China.

0.500 66.0 15 ● In 2014 , Q&M also purchased a 51% stake in Aidite, a dental company specialising in 10 dental crown manufacturing based in Hebei Province, China. The company was also 5 listed on the China New Third Board in Dec 2016, resulting in the dilution of Q&M's

Vol m Vol stake to c.38%. Jan-17 Apr-17 Jul-17 Oct-17 Source: Bloomberg ● Q&M had engaged in both spin-offs, hoping to fetch higher valuations, and provide different listing platform to raise funds for more aggressive growth. Price performance 1M 3M 12M Maintain Reduce with S$0.61 TP Absolute (%) 4 0 -8.5 ● We cut FY17-19F EPS by 4.9-8.7% as we factor in earnings dilution from the spin-off Relative (%) 2.5 -7 -26.6 of Aoxin and Aidite. But our target price inches up slightly to S$0.61 as we roll forward our valuation to end-CY19F, still pegged to 28x P/E (1 s.d. below its historical 5-year Major shareholders % held mean). Quan Min Holdings 47.1 Heritas Helios 8.2 ● We keep Q&M at Reduce despite its recent share price correction, as the stock still Dr Kelvin Koh Shunjie 4.3 looks expensive given the single-digit EPS growth over FY18-19F. The stock also Insert offers 1.4 – 1.7% FY17-19F dividend yield. ● The company commissioned a strategic review of its businesses, which was completed on 7 Aug 2017 but did not yield any outcome. We expect Q&M Dental to retain its existing M&A strategy to grow earnings, especially in tier 2 and 3 Chinese cities. ● Downside risks include unfavourable regulatory changes in China and poor M&A execution, while earnings-accretive acquisitions could catalyse the stock.

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F Revenue (S$m) 124.0 154.9 124.5 138.3 146.0 Operating EBITDA (S$m) 23.13 43.02 19.36 20.59 21.69 Net Profit (S$m) 11.40 28.30 14.54 15.92 17.22 Core EPS (S$) 0.011 0.015 0.018 0.020 0.022 Core EPS Growth (8.2%) 34.4% 22.9% 9.5% 8.2% FD Core P/E (x) 56.40 43.38 35.56 32.53 30.06 DPS (S$) 0.008 0.011 0.009 0.010 0.011 Dividend Yield 1.29% 1.72% 1.40% 1.54% 1.66% EV/EBITDA (x) 23.27 12.18 26.83 24.94 23.34 P/FCFE (x) 12.60 NA 40.78 40.54 36.01 Analyst(s) Net Gearing 14.1% 33.1% 29.7% 27.0% 23.8% NGOH Yi Sin P/BV (x) 5.50 4.50 4.25 3.99 3.74 T (65) 6210 8604 ROE 10.2% 11.4% 12.3% 12.6% 12.8% % Change In Core EPS Estimates (8.69%) (6.33%) (4.88%) E [email protected] CIMB/consensus EPS (x) 0.91 1.00 1.08

SOURCE: COMPANY DATA, CIMB FORECASTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform

Health Care Providers & Svs│Singapore│Q&M Dental Group│January 7, 2018

BY THE NUMBERS

Profit & Loss Balance Sheet

(S$m) Dec-16A Dec-17F Dec-18F Dec-19F (S$m) Dec-16A Dec-17F Dec-18F Dec-19F Total Net Revenues 154.9 124.5 138.3 146.0 Total Cash And Equivalents 44.1 46.1 47.5 49.9 Gross Profit 51.6 40.9 45.4 48.0 Total Debtors 23.8 18.7 20.8 22.0 Operating EBITDA 43.0 19.4 20.6 21.7 Inventories 7.6 5.2 5.5 5.7 Depreciation And Amortisation (4.5) (3.8) (3.8) (3.9) Total Other Current Assets 4.6 4.6 4.6 4.6 Operating EBIT 38.6 15.6 16.7 17.8 Total Current Assets 80.1 74.6 78.4 82.1 Financial Income/(Expense) (3.0) (3.2) (3.2) (3.2) Fixed Assets 27.4 27.9 28.4 28.7 Pretax Income/(Loss) from Assoc. 0.0 4.0 4.4 4.9 Total Investments 39.8 43.8 48.3 53.1 Non-Operating Income/(Expense) 0.0 0.0 0.0 0.0 Intangible Assets 75.2 75.2 75.2 75.2 Profit Before Tax (pre-EI) 35.5 16.4 18.0 19.5 Total Other Non-Current Assets 6.7 6.7 6.7 6.7 Exceptional Items Total Non-current Assets 149.1 153.6 158.5 163.7 Pre-tax Profit 35.5 16.4 18.0 19.5 Short-term Debt 15.5 15.5 15.5 15.5 Taxation (2.2) (2.0) (2.2) (2.3) Current Portion of Long-Term Debt Exceptional Income - post-tax Total Creditors 21.0 12.8 13.7 14.1 Profit After Tax 33.3 14.4 15.8 17.1 Other Current Liabilities 0.0 0.0 0.0 0.0 Minority Interests (5.0) 0.1 0.1 0.1 Total Current Liabilities 36.5 28.3 29.2 29.7 Preferred Dividends Total Long-term Debt 68.9 68.9 68.9 68.9 FX Gain/(Loss) - post tax Hybrid Debt - Debt Component Other Adjustments - post-tax 0.0 (0.0) (0.0) 0.0 Total Other Non-Current Liabilities 0.0 0.0 0.0 0.0 Net Profit 28.3 14.5 15.9 17.2 Total Non-current Liabilities 68.9 68.9 68.9 68.9 Recurring Net Profit 11.8 14.5 15.9 17.2 Total Provisions 1.7 1.7 1.7 1.7 Total Liabilities 107.1 99.0 99.8 100.3 Fully Diluted Recurring Net Profit 11.8 14.5 15.9 17.2 Shareholders' Equity 114.7 122.0 129.9 138.5 Minority Interests 7.4 7.3 7.2 7.1

Total Equity 122.0 129.2 137.1 145.6

Cash Flow Key Ratios

(S$m) Dec-16A Dec-17F Dec-18F Dec-19F Dec-16A Dec-17F Dec-18F Dec-19F EBITDA 43.02 19.36 20.59 21.69 Revenue Growth 25.0% (19.6%) 11.0% 5.6% Cash Flow from Invt. & Assoc. Operating EBITDA Growth 86.0% (55.0%) 6.3% 5.3% Change In Working Capital (6.10) (0.62) (1.57) (0.88) Operating EBITDA Margin 27.8% 15.5% 14.9% 14.9% (Incr)/Decr in Total Provisions Net Cash Per Share (S$) (0.051) (0.048) (0.046) (0.043) Other Non-Cash (Income)/Expense BVPS (S$) 0.14 0.15 0.16 0.17 Other Operating Cashflow (14.00) 3.20 3.20 3.20 Gross Interest Cover 11.33 4.58 4.92 5.23 Net Interest (Paid)/Received (3.04) (3.20) (3.20) (3.20) Effective Tax Rate 6.2% 12.0% 12.0% 12.0% Tax Paid (2.81) (1.97) (2.16) (2.33) Net Dividend Payout Ratio 31.5% 50.0% 50.0% 50.0% Cashflow From Operations 17.06 16.77 16.87 18.47 Accounts Receivables Days 55.10 62.38 52.22 53.49 Capex (7.09) (4.30) (4.30) (4.30) Inventory Days 33.30 27.88 20.97 20.86 Disposals Of FAs/subsidiaries Accounts Payables Days 82.7 73.8 52.1 51.8 Acq. Of Subsidiaries/investments (8.90) 0.00 0.00 0.00 ROIC (%) 30.8% 12.5% 13.4% 14.0% Other Investing Cashflow (4.41) 0.20 0.20 0.20 ROCE (%) 19.6% 7.5% 7.8% 7.9% Cash Flow From Investing (20.40) (4.10) (4.10) (4.10) Return On Average Assets 16.3% 7.7% 8.2% 8.4% Debt Raised/(repaid) (0.22) 0.00 0.00 0.00 Proceeds From Issue Of Shares 0.00 0.00 0.00 0.00 Shares Repurchased Dividends Paid (6.69) (7.27) (7.96) (8.61) Preferred Dividends Other Financing Cashflow (10.54) (3.40) (3.40) (3.40) Cash Flow From Financing (17.45) (10.67) (11.36) (12.01) Total Cash Generated (20.79) 2.00 1.41 2.36 Free Cashflow To Equity (3.56) 12.68 12.77 14.38

Free Cashflow To Firm 0.07 16.08 16.17 17.78

12-mth Fwd FD P/E (x) Key Drivers

48.1 Dec-16A Dec-17F Dec-18F Dec-19F No. Of Patient Admissions (m P.a.) N/A N/A N/A N/A 43.1 Revenue Per Patient Bed (S$) 0.4 0.5 0.5 0.5 38.1 Occupancy Rate Of Beds (%) N/A N/A N/A N/A 33.1 Average Length Of Stay (days) N/A N/A N/A N/A Beds Opened (units) 342.6 249.0 273.4 284.2 28.1 Bed Turnover A Year (x) N/A N/A N/A N/A 23.1 % of fgn patients to patient load N/A N/A N/A N/A

18.1 13.1 8.1 Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F

Q&M Dental Group Talkmed Group Ltd

SOURCE: CIMB RESEARCH, COMPANY DATA

30

Hospitals│Singapore│January 7, 2018

Company Brief

Singapore Raffles Medical Group ADD (no change) A bittersweet remedy in China Consensus ratings*: Buy 5 Hold 5 Sell 3 ■ We expect RFMD to incur start-up costs from the opening of the Chongqing hospital

Current price: S$1.12 in FY18F, followed by the Shanghai hospital from FY19F onwards. Target price: S$1.24 ■ But gestation woes are largely priced in and its current EV/EBITDA valuation seems attractive to gain exposure to China’s healthcare potential. Maintain Add. Previous target: S$1.24 ■ Also a beneficiary of favourable secular trends in Singapore, like ageing population, Up/downside: 10.5% increasing insurance coverage and heightened emphasis on primary healthcare. CIMB / Consensus: 2.0% Integrated private healthcare provider Reuters: RAFG.SI ● RFMD was established in 1976 and follows a “hub and spoke” model, where its Bloomberg: RFMD SP network of 40–50 general practitioner (GP) clinics across the island refer patients to its Market cap: US$1,494m specialist services and flagship hospital at Bugis. S$1,983m ● The group operates in two segments – healthcare and hospital services which Average daily turnover: US$2.17m accounted for 44% and 56% of FY16 topline, respectively. We believe RFMD is well S$2.94m positioned to ride on the secular trends of an ageing population, higher insurance Current shares o/s 1,771m penetration and increasing focus on primary care. Free float: 48.0% ● RFMD also has an Emergency Care Collaboration contract with the Ministry of Health *Source: Bloomberg (MOH). Its insurance arm services a broad corporate client base of over 6800, and

formed c.10% of its healthcare services segment.

Price Close Relative to FSSTI (RHS) Muted medical tourism; overseas expansion offers growth 1.500 100.4 ● Signs of softening medical tourism have been visible since FY14, as hospital revenue 1.300 83.3 growth slowed to single-digits, with foreign patients contributing c.30% of its topline. 1.100 66.1 ● Nevertheless, we remain positive on its local patient load which we think can provide a 0.900 49.0 20 sustainable earnings base; while near- to mid-term earnings uplift could come from 15 more clinics, full rental contribution from Holland V in FY18, and the upcoming Raffles 10 5 Hospital Extension (pending the official opening in 1Q18). Vol m Vol ● RFMD has also actively sought growth from overseas in recent years, starting with the Jan-17 Apr-17 Jul-17 Oct-17 Source: Bloomberg acquisition of Mayo clinics, the 700-bed Chongqing hospital (2H18) and 400-bed Shanghai hospital (2H19). Such exposure should allow the group to tap into the large Price performance 1M 3M 12M and underserved market, as well as their increasing healthcare spending. Absolute (%) 4.7 -0.9 -23 All eyes on Chongqing hospital in 2018 Relative (%) 3.2 -7.9 -41.1 ● We think 2018 will be the year when management executes on its Chongqing hospital. We estimate a 3-year EBITDA breakeven period and S$6m-13m p.a. EBITDA loss Major shareholders % held over FY18-20F for Chongqing, assuming i) a measured ramp-up in hospital beds Loo Choon Yong 48.0 (initial 300) and ii) gradual hiring of doctors and support staff. Standard Life Aberdeen 5.3 FIL Limited 3.5 ● With RFMD’s share price decline of c.27% in 2017, and at the current valuation of Insert 19.9x CY19F EV/EBITDA, which is close to 1 s.d. below its 5-year historical mean, China concerns appear to be largely priced in. The multi-year earnings decline attributable to the gestation of the Chongqing and Shanghai hospitals is inevitable for longer term gain, in our view. Maintain Add with an SOP-based TP of S$1.24 ● RFMD remains an Add at the current price level, especially for longer-term investors, with an SOP-based target price of S$1.24. ● Downside risks to our Add rating are deteriorating medical tourism in Singapore, and further consensus EPS downgrades. Successful execution of its first major overseas project in Chongqing would be the key catalyst for the stock.

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F Revenue (S$m) 410.5 473.6 489.1 524.5 675.9 Operating EBITDA (S$m) 89.7 93.1 94.2 95.9 107.6 Net Profit (S$m) 69.29 70.21 69.27 63.48 55.05 Core EPS (S$) 0.040 0.040 0.039 0.036 0.031 Core EPS Growth 2.9% (0.3%) (0.4%) (9.0%) (13.3%) FD Core P/E (x) 28.23 28.32 28.45 31.25 36.03 DPS (S$) 0.020 0.020 0.020 0.020 0.020 Dividend Yield 1.79% 1.79% 1.79% 1.79% 1.79% Analyst(s) EV/EBITDA (x) 20.97 20.20 21.13 22.93 20.57 P/FCFE (x) NA 56.52 NA NA 47.60 NGOH Yi Sin Net Gearing (8.6%) (12.0%) 0.6% 24.1% 22.1% T (65) 6210 8604 P/BV (x) 3.20 2.94 2.83 2.72 2.65 E [email protected] ROE 11.9% 10.8% 10.1% 8.9% 7.5% CIMB/consensus EPS (x) 0.98 1.02 0.91

SOURCE: COMPANY DATA, CIMB FORECASTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform

Hospitals│Singapore│Raffles Medical Group│January 7, 2018

BY THE NUMBERS

Profit & Loss Balance Sheet

(S$m) Dec-16A Dec-17F Dec-18F Dec-19F (S$m) Dec-16A Dec-17F Dec-18F Dec-19F Total Net Revenues 473.6 489.1 524.5 675.9 Total Cash And Equivalents 111.9 76.1 37.1 43.4 Gross Profit 473.6 489.1 524.5 675.9 Total Debtors 101.4 53.6 57.5 74.1 Operating EBITDA 93.1 94.2 95.9 107.6 Inventories 10.0 11.8 12.6 16.3 Depreciation And Amortisation (14.7) (15.1) (21.2) (39.0) Total Other Current Assets 0.0 0.0 0.0 0.0 Operating EBIT 78.4 79.2 74.7 68.6 Total Current Assets 223.3 141.5 107.2 133.7 Financial Income/(Expense) 1.0 0.8 (1.2) (6.2) Fixed Assets 270.1 315.0 381.8 384.8 Pretax Income/(Loss) from Assoc. 0.0 0.0 0.0 0.0 Total Investments 371.5 461.5 621.5 666.5 Non-Operating Income/(Expense) 3.5 0.0 0.0 0.0 Intangible Assets 30.7 30.7 30.7 30.7 Profit Before Tax (pre-EI) 82.9 80.0 73.5 62.4 Total Other Non-Current Assets 5.1 5.1 5.1 5.1 Exceptional Items Total Non-current Assets 677.3 812.3 1,039.0 1,087.0 Pre-tax Profit 82.9 80.0 73.5 62.4 Short-term Debt 13.5 13.5 13.5 13.5 Taxation (15.0) (12.8) (11.8) (10.0) Current Portion of Long-Term Debt Exceptional Income - post-tax Total Creditors 144.7 113.1 121.3 156.4 Profit After Tax 67.9 67.2 61.7 52.4 Other Current Liabilities 25.9 25.9 25.9 25.9 Minority Interests 2.3 2.1 1.8 2.7 Total Current Liabilities 184.0 152.5 160.6 195.7 Preferred Dividends Total Long-term Debt 16.9 66.9 206.9 206.9 FX Gain/(Loss) - post tax Hybrid Debt - Debt Component Other Adjustments - post-tax Total Other Non-Current Liabilities 12.8 12.8 12.8 12.8 Net Profit 70.2 69.3 63.5 55.1 Total Non-current Liabilities 29.7 79.7 219.7 219.7 Recurring Net Profit 68.7 69.3 63.5 55.1 Total Provisions 4.9 4.9 4.9 4.9 Total Liabilities 218.6 237.0 385.2 420.2 Fully Diluted Recurring Net Profit 68.7 69.3 63.5 55.1 Shareholders' Equity 666.4 700.2 728.3 747.9 Minority Interests 15.5 16.4 32.6 52.4

Total Equity 681.8 716.6 760.9 800.4

Cash Flow Key Ratios

(S$m) Dec-16A Dec-17F Dec-18F Dec-19F Dec-16A Dec-17F Dec-18F Dec-19F EBITDA 93.1 94.2 95.9 107.6 Revenue Growth 15.4% 3.3% 7.2% 28.9% Cash Flow from Invt. & Assoc. Operating EBITDA Growth 3.8% 1.2% 1.8% 12.1% Change In Working Capital (6.0) 14.4 3.5 14.8 Operating EBITDA Margin 19.7% 19.3% 18.3% 15.9% (Incr)/Decr in Total Provisions Net Cash Per Share (S$) 0.05 (0.00) (0.10) (0.10) Other Non-Cash (Income)/Expense BVPS (S$) 0.38 0.40 0.41 0.42 Other Operating Cashflow 4.8 0.0 0.0 (2.0) Gross Interest Cover 509.2 395.8 33.9 9.5 Net Interest (Paid)/Received 1.0 0.8 (1.2) (6.2) Effective Tax Rate 18.1% 16.0% 16.0% 16.0% Tax Paid (12.7) (12.8) (11.8) (10.0) Net Dividend Payout Ratio 49.8% 51.1% 55.8% 64.3% Cashflow From Operations 80.3 96.7 86.4 104.2 Accounts Receivables Days 68.16 57.84 38.65 35.52 Capex (14.5) (60.0) (88.0) (40.0) Inventory Days N/A N/A N/A N/A Disposals Of FAs/subsidiaries Accounts Payables Days N/A N/A N/A N/A Acq. Of Subsidiaries/investments ROIC (%) 27.0% 26.6% 22.4% 16.7% Other Investing Cashflow (29.9) (87.0) (142.0) (22.5) ROCE (%) 11.6% 10.6% 8.5% 6.9% Cash Flow From Investing (44.4) (147.0) (230.0) (62.5) Return On Average Assets 7.83% 7.17% 5.97% 4.86% Debt Raised/(repaid) (1.5) 50.0 140.0 0.0 Proceeds From Issue Of Shares 7.1 0.0 0.0 0.0 Shares Repurchased Dividends Paid (14.1) (35.4) (35.4) (35.4) Preferred Dividends Other Financing Cashflow Cash Flow From Financing (8.5) 14.6 104.6 (35.4) Total Cash Generated 27.4 (35.8) (39.0) 6.3 Free Cashflow To Equity 34.4 (0.3) (3.6) 41.7

Free Cashflow To Firm 36.0 (50.1) (141.4) 48.9

12-mth Fwd FD P/E (x) Key Drivers

48 Dec-16A Dec-17F Dec-18F Dec-19F No. Of Patient Admissions (m P.a.) 0.0 0.0 0.0 0.0 43 Revenue Per Patient Bed (S$) 11,754.7 11,931.0 12,169.6 12,534.7 38 Occupancy Rate Of Beds (%) N/A N/A N/A N/A 33 Average Length Of Stay (days) N/A N/A N/A N/A 28 Beds Opened (units) N/A N/A N/A N/A 23 Bed Turnover A Year (x) N/A N/A N/A N/A % of fgn patients to patient load N/A N/A N/A N/A 18 13 8 3 Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F

Health Management International IHH Healthcare Bhd Raffles Medical Group

SOURCE: CIMB RESEARCH, COMPANY DATA

32

Health Care Providers & Svs│Singapore│January 7, 2018

Company Brief

Singapore Talkmed Group Ltd HOLD (no change) Cashing on healthcare brand name Consensus ratings*: Buy 0 Hold 2 Sell 0 ■ Highly profitable and cash-generative oncology specialist with established brand.

Current price: S$0.70 ■ But near-term overhang from key doctor suspension; exporting franchises overseas Target price: S$0.68 will take time to build sufficient earnings diversification. ■ Maintain Hold with lower EPS and DCF-based TP of S$0.68, and 3% dividend yield. Previous target: S$0.92 Up/downside: -1.6% Leading private oncology specialist CIMB / Consensus: -5.0% ● Talkmed is an established medical oncology and palliative care services provider, with 14 doctors at seven clinics across Singapore. It operates under the Parkway Cancer Reuters: TALK.SI Centre (PCC) brand name, and leverages on the wide network of Parkway Hospitals Bloomberg: TKMED SP Singapore and its affiliates for patient referrals. Market cap: US$688.1m ● It is also a proxy to medical tourism, with foreign patients accounting for an estimated S$913.4m 50% of patient load (mainly from Indonesia, Malaysia and Vietnam) over the past few Average daily turnover: US$0.03m years. Talkmed records 30k to 40k patient visits a year, on average. S$0.05m Highly profitable and cash generative, with decent dividend yield Current shares o/s 1,314m ● While it is challenging to grow topline given the niche medical field (historically at Free float: 16.0% single-digit), the business has consistently reported net margins of 50-60%. It also has *Source: Bloomberg minimal capex requirements which results in free cash flow of over S$30m every year on average; it is in a net cash position of S$65m as of end-Sep 17 (zero debt). Price Close Relative to FSSTI (RHS) 1.000 172 ● Such cash-generating abilities enable the company to pay out 80% of its net profit (per dividend policy), implying c.3% dividend yield for FY17-19F. 0.800 145 Near-term overhang from key doctor suspension 0.600 119 ● An inherent business risk for Talkmed, which we have highlighted since its IPO, is its 0.400 92 3 reliance on CEO, Dr Ang Peng Tiam, who contributed to c.55% of its FY16 revenue. 2 ● In July 17, the key doctor was suspended for 8 months after losing his appeal against

1 the Singapore Medical Council, before restarting in April 18. We estimate some loss of Vol m Vol Jan-17 Apr-17 Jul-17 Oct-17 patients and revenue even as existing patients could be redirected to other Talkmed’s Source: Bloomberg specialists. Building overseas presence gradually Price performance 1M 3M 12M ● In 2015, Talkmed invested in a 30% stake in Hong Kong Integrated Oncology Centre Absolute (%) -4.1 8.6 34.3 (HKIOC) and Integrated Imaging & Endoscopy Diagnostic Centre (HKIEDC), in Relative (%) -5.6 1.6 16.2 partnership with TE Asia Healthcare Partners. While the associates’ contribution

Major shareholders % held reported a smaller net loss of S$0.4m in 3QFY17, it was profitable at the EBITDA Ladyhill Holdings Pte Ltd 65.4 level, and we believe it is on track to achieve breakeven in FY18F as patient load Dr Khoo Kei Siong 7.6 ramps up. Dr Teo Cheng Peng 7.5 ● In 2017, the group announced plans to venture into China, via management contracts Insert in Chongqing and Beijing (partnership with Beijing New Hope Hospital Management). ● While overall positive on these overseas projects (on the possibility of cross-referring patients to Singapore), we opine that this asset-light strategy will take time to build sufficient scale for earnings diversification, but would not put its dividend payout at risk. Maintain Hold with a lower EPS and TP of S$0.68 ● We cut our FY17-19F EPS by 18-21% as we factor in earnings loss from the key doctor suspension, which leads to a lower DCF-backed target price of S$0.68 (WACC 7.1%) even as we roll forward our valuation to end FY18F. Our Hold rating is intact. ● Downside risks are market share loss and slowing medical tourism. Re-rating catalyst could come from stronger expansion into North Asia.

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F Revenue (S$m) 65.72 68.91 59.27 62.82 66.59 Operating EBITDA (S$m) 48.01 48.48 39.09 42.19 45.16 Net Profit (S$m) 37.34 37.39 31.38 35.30 37.94 Core EPS (S$) 0.028 0.028 0.024 0.027 0.029 Core EPS Growth (3.4%) 0.1% (16.1%) 12.5% 7.5% FD Core P/E (x) 24.46 24.43 29.11 25.87 24.07 Analyst(s) DPS (S$) 0.023 0.023 0.019 0.021 0.023 Dividend Yield 3.37% 3.28% 2.75% 3.09% 3.32% NGOH Yi Sin EV/EBITDA (x) 17.83 17.43 21.47 19.74 18.29 T (65) 6210 8604 P/FCFE (x) 27.47 18.13 24.98 21.98 20.82 E [email protected] Net Gearing (86%) (100%) (102%) (101%) (99%) William TNG, CFA P/BV (x) 16.22 14.37 13.08 11.88 10.81 T (65) 6210 8676 ROE 70.4% 62.4% 47.0% 48.1% 47.0% % Change In Core EPS Estimates (20.8%) (20.3%) (17.8%) E [email protected] CIMB/consensus EPS (x) 0.96 1.07 0.82

SOURCE: COMPANY DATA, CIMB FORECASTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform

Health Care Providers & Svs│Singapore│Talkmed Group Ltd│January 7, 2018

BY THE NUMBERS

Profit & Loss Balance Sheet

(S$m) Dec-16A Dec-17F Dec-18F Dec-19F (S$m) Dec-16A Dec-17F Dec-18F Dec-19F Total Net Revenues 68.91 59.27 62.82 66.59 Total Cash And Equivalents 64.00 70.66 76.58 82.69 Gross Profit 68.91 59.27 62.82 66.59 Total Debtors 6.87 8.46 8.96 9.48 Operating EBITDA 48.48 39.09 42.19 45.16 Inventories 0.06 0.00 0.00 0.00 Depreciation And Amortisation (0.27) (0.35) (0.35) (0.35) Total Other Current Assets 0.00 0.00 0.00 0.00 Operating EBIT 48.21 38.74 41.84 44.81 Total Current Assets 70.93 79.12 85.53 92.17 Financial Income/(Expense) 0.00 0.00 0.00 0.00 Fixed Assets 0.51 0.86 1.01 1.16 Pretax Income/(Loss) from Assoc. (3.63) (2.00) 0.00 0.50 Total Investments 5.00 3.00 3.00 3.50 Non-Operating Income/(Expense) 0.91 0.60 0.60 0.60 Intangible Assets 0.00 0.00 0.00 0.00 Profit Before Tax (pre-EI) 45.49 37.34 42.44 45.91 Total Other Non-Current Assets 0.01 0.01 0.01 0.01 Exceptional Items 0.00 0.00 0.00 0.00 Total Non-current Assets 5.53 3.88 4.03 4.67 Pre-tax Profit 45.49 37.34 42.44 45.91 Short-term Debt 0.00 0.00 0.00 0.00 Taxation (8.61) (6.76) (7.64) (8.26) Current Portion of Long-Term Debt 0.00 0.00 0.00 0.00 Exceptional Income - post-tax Total Creditors 1.74 1.20 1.20 1.20 Profit After Tax 36.88 30.58 34.80 37.64 Other Current Liabilities 10.59 10.59 10.59 10.59 Minority Interests 0.51 0.80 0.50 0.30 Total Current Liabilities 12.32 11.79 11.79 11.79 Preferred Dividends 0.00 0.00 0.00 0.00 Total Long-term Debt 0.00 0.00 0.00 0.00 FX Gain/(Loss) - post tax 0.00 0.00 0.00 0.00 Hybrid Debt - Debt Component 0.00 0.00 0.00 0.00 Other Adjustments - post-tax 0.00 0.00 0.00 0.00 Total Other Non-Current Liabilities 0.03 1.63 1.63 1.63 Net Profit 37.39 31.38 35.30 37.94 Total Non-current Liabilities 0.03 1.63 1.63 1.63 Recurring Net Profit 37.39 31.38 35.30 37.94 Total Provisions 0.00 0.00 0.00 0.00 Total Liabilities 12.35 13.42 13.42 13.42 Fully Diluted Recurring Net Profit 37.39 31.38 35.30 37.94 Shareholders' Equity 63.58 69.85 76.91 84.50 Minority Interests 0.53 (0.27) (0.77) (1.07)

Total Equity 64.11 69.58 76.14 83.43

Cash Flow Key Ratios

(S$m) Dec-16A Dec-17F Dec-18F Dec-19F Dec-16A Dec-17F Dec-18F Dec-19F EBITDA 48.48 39.09 42.19 45.16 Revenue Growth 4.9% (14.0%) 6.0% 6.0% Cash Flow from Invt. & Assoc. 6.00 7.00 8.00 8.00 Operating EBITDA Growth 1.0% (19.4%) 7.9% 7.0% Change In Working Capital 3.77 (2.06) (0.50) (0.53) Operating EBITDA Margin 70.3% 66.0% 67.2% 67.8% (Incr)/Decr in Total Provisions 0.00 0.00 0.00 0.00 Net Cash Per Share (S$) 0.049 0.054 0.058 0.063 Other Non-Cash (Income)/Expense 0.00 0.00 0.00 0.00 BVPS (S$) 0.048 0.053 0.059 0.064 Other Operating Cashflow Gross Interest Cover N/A N/A N/A N/A Net Interest (Paid)/Received 0.73 0.00 0.00 0.00 Effective Tax Rate 18.9% 18.1% 18.0% 18.0% Tax Paid (8.34) (6.76) (7.64) (8.26) Net Dividend Payout Ratio 80.2% 80.0% 80.0% 80.0% Cashflow From Operations 50.65 37.27 42.05 44.37 Accounts Receivables Days 43.39 46.10 49.56 49.56 Capex (0.25) (0.70) (0.50) (0.50) Inventory Days N/A N/A N/A N/A Disposals Of FAs/subsidiaries 0.00 0.00 0.00 0.00 Accounts Payables Days N/A N/A N/A N/A Acq. Of Subsidiaries/investments 0.00 0.00 0.00 0.00 ROIC (%) (5930%) (796%) (1703%) (2472%) Other Investing Cashflow 0.00 0.00 0.00 0.00 ROCE (%) 79.4% 58.0% 57.4% 56.2% Cash Flow From Investing (0.25) (0.70) (0.50) (0.50) Return On Average Assets 50.9% 38.4% 40.3% 40.4% Debt Raised/(repaid) 0.00 0.00 0.00 0.00 Proceeds From Issue Of Shares 0.00 0.00 0.00 0.00 Shares Repurchased 0.00 0.00 0.00 0.00 Dividends Paid (30.13) (25.10) (28.24) (30.35) Preferred Dividends 0.00 0.00 0.00 0.00 Other Financing Cashflow 0.00 0.00 0.00 0.00 Cash Flow From Financing (30.13) (25.10) (28.24) (30.35) Total Cash Generated 20.26 11.47 13.32 13.51 Free Cashflow To Equity 50.39 36.57 41.55 43.87

Free Cashflow To Firm 50.39 36.57 41.55 43.87

12-mth Fwd FD P/E (x)

48 43 38 33 28 23 18 13 8 3 Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F

Health Management International IHH Healthcare Bhd Talkmed Group Ltd

SOURCE: CIMB RESEARCH, COMPANY DATA

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Navigating Singapore│Healthcare - Overall│January 7, 2018

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Navigating Singapore│Healthcare - Overall│January 7, 2018

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Navigating Singapore│Healthcare - Overall│January 7, 2018

of CIMB Securities (USA) Inc. CIMB Securities (USA) Inc does not make a market on other securities mentioned in the report. Neither CIMB Securities (USA) Inc., nor its affiliates have managed or co-managed a public offering of any of the securities mentioned in the past 12 months. Neither CIMB Securities (USA) Inc., nor its affiliates have received compensation for investment banking services from any of the company mentioned in the past 12 months. Neither CIMB Securities (USA) Inc., nor its affiliates expects to receive or intends to seek compensation for investment banking services from any of the company mentioned within the next 3 months. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. Distribution of stock ratings and investment banking clients for quarter ended on 30 September 2017 1285 companies under coverage for quarter ended on 30 September 2017 Rating Distribution (%) Investment Banking clients (%) Add 53.5% 4.3% Hold 35.9% 2.6% Reduce 9.7% 0.2%

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2017, Anti-Corruption 2017 AAV – Very Good, n/a, ADVANC – Excellent, Certified, AEONTS – Good, n/a, AMATA – Very Good, n/a, ANAN – Excellent, n/a, AOT – Excellent, Declared, AP – Excellent, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Declared, BCP - Excellent, Certified, BCPG – Very Good, n/a, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, n/a, BEC – Very Good, n/a, , BGRIM – not available, n/a, BH - Good, n/a, BJC – Very Good, Declared, BJCHI – Very Good, Declared, BLA – Very Good, Certified, BPP – Good, n/a, BR - Good, Declared, BTS - Excellent, Certified, CBG – Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, n/a, DEMCO – Excellent, Certified, DIF – not available, n/a, DTAC – Excellent, Certified, EA – Very Good, n/a, ECL – Very Good, Certified, EGCO - Excellent, Certified, EPG – Very Good, n/a, GFPT - Excellent, Declared, GGC – not available, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Excellent, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Certified, ICHI – Excellent, n/a, III – not available, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Very Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Certified, M – Very Good, n/a, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Very Good, Declared, MALEE – Very Good, n/a, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Excellent, Declared, PLAT – Very Good, Certified, PSH – Excellent, Certified, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Very Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI – Very Good, Declared, SPA - Good, n/a, SPALI - Excellent, n/a, SPRC – Excellent, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, n/a, TCAP – Excellent, Certified, THAI – Very Good, n/a, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Excellent, Certified, TICON – Very Good, Declared, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Very Good, Declared, TMB - Excellent, Certified, TNR – Good, n/a, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Excellent, Declared, TTW – Very Good, n/a, TU – Excellent, Declared, TVO – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a. Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into: - Companies that have declared their intention to join CAC, and

- Companies certified by CAC

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Navigating Singapore│Healthcare - Overall│January 7, 2018

CIMB Recommendation Framework Stock Ratings Definition: Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition: Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition: Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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