Raffles Medical's 1HFY22 Earnings Preview - Earnings Transition
- Raffles Medical's share price has fallen 18% year-to-date; we believe investors are wary of the earnings gap left behind by COVID-19-related services in FY21.
- We estimate a ~10% decline in Raffles Medical (SGX:BSL)'s core net profit in 1H22F, with the return of BAU (business as usual) cases offsetting lower contribution from COVID-19 services.
- Based on Raffles Medical’s FY21 annual report, we estimate that COVID-19-related services contributed at least 20% of FY21 revenues. With Singapore’s move towards endemicity, we expect revenue from COVID-19-related services to decline by ~60% in our FY22-24F forecasts. Even though the latest wave of infections suggests that the Singapore government could once again step up collaboration efforts with private healthcare providers like Raffles Medical, we believe the intensity of such efforts will be much lower, given the smaller scale of operations for COVID-19 testing, vaccinations, as well as management of community facilities.
- Various parts of China entered into sporadic lockdowns during 1H22F, including cities such as Shanghai and Beijing. We expect operations at Raffles Medical's new hospitals in Chongqing and Shanghai to delay EBITDA breakeven by a year, with aggregate breakeven for its China hospitals expected in FY24F.
- Upgrade Raffles Medical to ADD with a lower target price of S$1.27 on new valuation method. Our new Raffles Medical's target price is pegged to 16x FY23F EV/EBITDA, i.e. 0.5 standard deviation below its 5-year historical mean, reflecting the valuation overhang from an extended gestation period of its new China hospitals. The change in valuation method from SOP previously is due to a lack of information regarding Raffles Medical’s China operations.
- (Raffles Medical is scheduled to release its 1HFY22 financials on 2022-08-01. See Earnings Calendar.)
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
TAY Wee Kuang CGS-CIMB Research | https://www.cgs-cimb.com 2022-07-09 2022-07-09
Read also CGS-CIMB's most recent report:
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