Raffles Medical Group - UOB Kay Hian 2022-11-01: 3Q22 Strong Profitability, Driven By Better Cost Control

• Raffles Medical’s 3Q22 net profit surged to S$38.3m (+62.1% y-o-y) from better cost efficiencies, exceeding our expectations.
• Due to the relaxation of most COVID-19 measures, outpatient volumes at Raffles Medical’s local GP clinics have been robust. Raffles Medical is also benefitting from an ongoing COVID-19 wave as public hospitals face overwhelming patient volumes.
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Raffles Medical's 3Q22 above expectations.

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• The strong outperformance was led by the relaxation of most COVID-19 measures in Singapore and better cost efficiencies, which led to higher patient volumes and robust margin expansion. 3Q22 net profit margin expanded 6.6ppt y-o-y due to a better product mix from lesser PCR testing revenue, better cost efficiency from staff reallocation and lesser inventories/consumables used.
• Moving forward, we expect Raffles Medical to continue its upward momentum as Singapore tackles a new COVID-19 wave and the gradual return of higher-billing foreign patients.
• Rising outpatient volumes. We understand that current outpatient volumes at Raffles Medical’s local general practitioner (GP) clinics have been robust at above pre-pandemic levels, driven by increased COVID-19 cases from the new Omicron XBB sub-variant, patients with respiratory symptoms and increasing corporate patients as more workers return back to their respective workplaces.
• As Singapore is facing a new COVID-19 wave, we reckon that contributions from this segment would continue to support and boost top-line growth in 4Q22.
• Beneficiary of spillover demand. Because of the Emergency Care Collaboration programme, Raffles Medical has benefitted from overloaded public hospitals caused by the new COVID-19 variant, which contributed to Raffles Medical’s top-line growth. Raffles Medical has been taking in both COVID-19 and non-COVID-19 patients as public hospitals face mounting patient volumes. We also believe Raffles Hospital is experiencing higher patient loads due to:
  1. the return of foreign patients since Jun 22,
  2. an increase in elective surgeries as public hospitals have deferred non-emergency cases to tackle the ongoing bed crunch.
• COVID-19 services to taper off. With most of Singapore’s population (80%) fully vaccinated (including the third booster shot), Raffles Medical has guided that COVID-19 services are expected to taper off in 4Q22. The emergence of new COVID-19 variants and the introduction of the new bivalent vaccine could help support vaccination revenue in the short term, but are unlikely to stem the overall decline, in our view.
• Raffles Medical’s Community Care Facility at Connect@Changi is also expected to operate only till end-22, pending the absence of a further extension.

China: Delayed breakeven timeline.

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Llelleythan Tan UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2022-11-01 SGinvestors.io

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