Raffles Medical - UOB Kay Hian 2023-11-07: Weaker 3Q23 Performance As Margin Pressure Builds

• Raffles Medical’s 3Q23 net profit fell to S$12.4m (-67.4% y-o-y) on the absence of COVID-19 related revenue, higher insurance claims and rising costs, missing our expectations. While its TCF at the Expo has been extended, we note that margins have been eroded due to competitive bidding.
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• Downgrade Raffles Medical to HOLD with a lower P/E-based target price of S$1.15.

Raffles Medical's 3Q23 earnings missed expectations.

• Raffles Medical (SGX:BSL)’s 9M23 revenue (- 14.7% y-o-y) and net profit (-25.6% y-o-y) formed 78.1% and 68.8% of our full-year forecasts respectively, with net profit below our expectations.
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• As mentioned in our previous update, the y-o-y decline in top-and bottom line performance was mainly due to the absence of COVID-19-related revenue from the healthcare services segment, higher insurance claims and increased inflationary cost pressures. This led to a fall in profitability and significant margin erosion with 3Q23 net margin contracting 10.0ppt y-o-y to 7.7%.
• The rate of margin erosion was much larger than our expectations, leading to the net profit miss against our full-year estimates.

Falling margins.

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Llelleythan Tan UOB Kay Hian Research | Heidi Mo UOB Kay Hian | https://research.uobkayhian.com/ 2023-11-07 SGinvestors.io

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