Is Raffles Medical Group Ltd Finally Poised For Fast Growth In China?

After announcing last Wednesday that it has registered a new company in China – called Shanghai Qihua Hospital (SQH) – whose main purpose is to develop a hospital, healthcare outfit Raffles Medical Group Ltd (SGX: R01) revealed yesterday that it has formed a joint venture with Shanghai LuJiaZui Group to develop a 400-bed international general hospital in Shanghai’s Pudong New Area; this project has been named the Shanghai New Bund International Hospital Project.

It’s not known if the two announcements are related but, in any case, Raffles Medical Group’s latest joint venture with Shanghai LuJiaZui is the clearest sign yet that the company’s expansion plans in China are finally taking shape.

Raffles Medical had first revealed its intentions to enter the Chinese healthcare market back in 2013, but for the past two years, there hasn’t really been any concrete developments on that front. It wasn’t until last week, when the healthcare outfit made known that it will be contributing RM188 million (roughly S$40 million) for the registered capital of SQH, that there were signs that things are finally moving in the right direction.

The Shanghai New Bund International Hospital Project “will provide high quality and comprehensive healthcare services to local, expatriate, regional and international patients.” Raffles Medical will be helping to plan and manage the operations of the new hospital, which will be equipped with state-of-the-art medical technology and which will be offering specialist services in a wide array of medical fields including gynecology, cardiology, and orthopedics.

It’s interesting to note that the new hospital will be following the lead of Raffles Medical’s flagship Raffles Hospital in adopting the institutional group practice model. The Singapore-based Raffles Hospital has been a huge driver of growth for Raffles Medical since its opening in 2002; Raffles Medical’s Hospital Services business segment has seen its profit more than double from S$28.1 million in 2008 to S$60.8 million in 2014.

Here’s how Raffles Medical describes the institutional group practice model in the announcement:

“This model affords a structure of clinical governance and a staff of medical specialists working together as a team and sharing a common commitment to the highest quality of medical practice through service, teaching and research.”

Besides having a nice blueprint for the successful provision of medical services in the institutional group practice model, the Shanghai New Bund International Hospital Project is also located in what seems to be an attractive location.

The new hospital will be seated in “an emerging business centre in Pudong that has been designated by the Shanghai municipal government as one of six priority development areas in Shanghai’s 12th Five-Year Plan.” Accessibility is also bolstered by the fact that the new hospital’s site is located snugly between two of Shanghai’s major airports, the Shanghai Pudong International Airport and the Hongqiao International Airport. Both airports collectively handle more than 90 million passengers annually.

A Fool’s take

There’re no details yet on Raffles Medical’s ownership stake in the Shanghai New Bund International Hospital Project. But in any case, the development of a 400-bed hospital is still a sizeable growth opportunity for the company given that Raffles Hospital had less than 200 operational beds back in 2011.

Risks with the new project would certainly be present given that Raffles Medical does not yet have much experience with running a foreign hospital (though the company does have a handful of medical centres in Shanghai and Hongkong). So, it’d be important for investors to keep a close watch on how the hospital’s being run when it’s completed.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Raffles Medical Group.