Raffles Medical Group - DBS Research 2022-08-02: Another Record-Breaking Year!

Raffles Medical Group - Another Record-Breaking Year!

  • Raffles Medical (SGX:BSL)’s 1H22 PATMI grew 51% y-o-y (+34% h-o-h) to S$60m, above our estimates, recording one of its best half-yearly results. Despite the tapering off of contributions from COVID-19-related services, the record-high results were led by the return of volumes of both local and foreign patients.
  • 1H22 revenue grew 11% y-o-y to S$382m, led by growth in healthcare services (+24.1% y-o-y) but hospitals services fell 11.4% y-o-y due to lower PCR diagnostic tests carried out.
  • More importantly, we note that healthcare services have doubled to that of pre-COVID (1H19 revenue), while hospital services are back to pre-COVID levels.

Raffles Medical - Outlook

  • Steady return of foreign patients achieving 60% of pre-COVID level; expect to hit pre-COVID levels by year-end. From May-June 2022, post travel borders reopening in Apr 22, Raffles Medical has seen a steady return of foreign patients. Management believes that foreign patient volumes are at ~60% of pre-COVID levels and hopes to see a full return by year-end, especially when China’s travel borders reopen.
  • Elective procedures by local patients have returned. Raffles Medical has also seen a return of elective procedures by local patients post further relaxations in Singapore. Singapore outpatient volumes have surpassed that of pre-COVID levels.
  • Management believes that the strong margins could be sustainable, despite not having to raise prices. Management has been managing its cost and improving operating efficiency to drive margins.
  • Expected gestation losses for FY22F in line with guidance. While China hospitals were impacted by the lockdowns, management saw patient volume in Chongqing doubling despite the lockdown. Barring further lockdowns, management believes that the hospital operations would progressively return to normalcy. The expected gestation losses are in line with the previous guidance of S$10m for year 1 of operations (Raffles Hospital Shanghai), S$3-S$5m for year 2 of operations (Raffles Hospital Chongqing), and breakeven in year 3.
  • We believe the new IVF/Assisted Reproductive Therapy centre at Le Cheng, Hainan has great potential in the long term. Management explained that Le Cheng in Hainan is a dedicated healthcare hub set aside by the Chinese Government. Given that this is a specialised healthcare hub, the Chinese Government could allow the usage of medication that may not be accessible in the rest of China. As such, management sees the potential to eventually expand it into a cancer specialised centre in Le Cheng that could allow patients access to drugs that would previously not be accessible.
  • The capex for the IVF centre is minimal (~S$10m), as Raffles Medical will be renting a floor from the specialised healthcare hub.
  • We see positives for the IVF centre, where approvals/licenses in China are hard to obtain and believe there could be great potential if Raffles Medical could expand further into cancer treatment in Le Cheng. However, we believe it is still too early to determine the significance of the contribution and continue to keep it in view for further developments.

Maintain BUY recommendation on Raffles Medical

  • We maintain our BUY rating on Raffles Medical and raised our target price marginally to S$1.64 from S$1.63 previously.
    • We raised our FY22F-FY23F earnings forecast for Raffles Medical by 24% to 25% given the strong 1H22 results achieved.
    • Given the strong earnings delivered, we lower our P/E multiple to 26x, -0.5 standard deviation of historical range, from 32x previously, +0.5 standard deviation.
  • Raffles Medical's share price is currently trading at very attractive valuations at 21x FY22F P/E, below -1 standard deviation of its historical range.
  • We continue to believe that Raffles Medical will continue to benefit from the return to normalcy post the COVID-19 pandemic, from
    1. the return of foreign patients and
    2. the return of elective procedures.
  • In addition, we believe the next key catalyst for further re-rating is the reopening of China, which will drive
    1. foreign patients from China and
    2. ramp up the three hospitals in China.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.

Rachel Lih Rui TAN DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-08-02
SGX Stock Analyst Report BUY MAINTAIN BUY 1.64 UP 1.63

Read also DBS Research's most recent report:
2022-11-01 Raffles Medical - Surpassing Record-Breaking Year

Target prices by 4 other brokers at Raffles Medical Target Prices.
Listing of broker reports at Raffles Medical Analyst Report.

Relevant links:
Raffles Medical Share Price History,
Raffles Medical Announcements,
Raffles Medical Dividends & Corp Actions,
Raffles Medical News Articles


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