Raffles Medical Group
Price target:
RHB Group Research “buy” $1.55 Maybank Securities “buy” $1.50 CGS-CIMB “hold” $1.33 PhillipCapital “neutral” $1.27
Normalised growth with pandemic abating
Analysts continue to view Raffles Medical Group favourably following its results for FY2021 ended Dec 31, 2021, where earnings rose by 27.7% to $84.2 million, from $65.9 million in the year before, thanks to stronger revenue growth from providing Covid-19 related services.
This is “in line with our expectations” and shows that the group is slowly transitioning to business as usual, RHB Group Research analyst Shekhar Jaiswal writes in a Feb 22 note.
Going forward, Jaiswal, who has a “buy” call and $1.55 target price on the stock, expects revenue from Covid-19 related services to taper off in the next two quarters. This comes as Singapore’s default care management for Covid-19 patients has become home recovery, since most patients are either asymptomatic or have mild symptoms.
Additionally, Raffles Medical, which has been operating exclusive healthcare clinics offering the RT-PCR testing at the airport, is expected to take a hit from the simplification of testing protocols for vaccinated travellers entering Singapore, as the expensive on-arrival RT-PCR test has been replaced with a cheaper supervised Antigen Rapid Test.
“We forecast Covid-19 support activities to taper off sequentially, especially its RT-PCR test revenues as Singapore relaxes testing protocols for vaccinated travel lane (VTL) travellers,” notes Maybank Securities analyst Eric Ong, who has a “buy” call and $1.50 target price.
Meanwhile, Ong reckons that the company’s operations in China may take a hit from the emergence of sporadic Covid-19 clusters.
For now, the management has guided that the breakeven for its Chongqing hospital is likely to be delayed by a year till 2022. In this time, its hospital in Shanghai — which commenced operations in mid-2021 — is expected to incur ebitda losses of $10 million this year, notes Ong.
In any case, he adds that the company’s three hospitals in China will continue to see improved patient loads with the easing of movement restrictions.
In FY2021, Raffles Medical’s operations in China accounted for 7% of its total revenue. RHB’s Jaiswal is expecting “the China operations to see a steady ramp-up in revenue from 2H2022”. He sees 2022 as a transition year for Raffles Medical “as the decline in Covid-19-related revenue should be partially offset by higher hospital revenue”.
In any case, Jaiswal adds that the easing of borders and resumption of international travel would see more of Raffles Medical’s patients from regional countries seeking treatment here.
Agreeing, Maybank’s Ong says that the Raffles Medical should benefit from the government’s move to restructure the local healthcare ecosystem to allow general practitioners to play a greater role.
CGS-CIMB’s Tay Wee Kuang is more cautious. He has lowered his FY2022 and FY2023 earnings forecast by 21 to 23% to reflect normalised earnings amidst a challenging operating environment. “The exceptional growth in FY2021 will be tough to beat,” says Tay, who has “hold” call and $1.33 target price on the stock.
PhillipCapital’s Paul Chew is also “neutral” on the group as he expects FY2022 to see weaker earnings. The lower estimate is attributable to the expected decline of Covid-19-related services from reduced polymerase chain reaction (PCR) swab tests and fewer vaccination programmes, full-year losses from Raffles Hospital Shanghai and a slower recovery in foreign patients.
In his report dated Feb 23, Chew has lowered his target price to $1.27 from $1.35. He has also cut his earnings estimates for FY2022 by 8%.