Analysts at Maybank Securities and RHB Group Research have maintained their “buy” calls on Raffles Medical Group BSL , anticipating strong 2HFY2022 earnings as well as positive outlook for its China segment.
Maybank’s Eric Ong notes that the abrupt reversal of China’s zero-Covid policy in early January has led to higher volumes across Raffles Medical’s hospitals in the country. This is mainly patients with mild symptoms who can well afford the medical fees of private healthcare.
“That said, we understand that some higher-margin elective procedures were deferred during the huge surge in infections. Greater China now accounts for about 7% of total turnover. As the country gradually enters an endemic phase by end-1QFY2023, we think this could result in a shorter break even period for its China operations,” says Ong.
Meanwhile, RHB analyst Shekhar Jaiswal says that China’s reopening could also boost medical tourism in Singapore. Historically, foreign parents used to account for close to one-third of Raffles Medical’s overall patient load in Singapore. Since the Singapore borders reopened in Apr 2022, the country has seen a return of foreign patients, especially from Indonesia and Indochina.
“Medical tourism in Singapore will gain further momentum with China reopening its borders. We believe this should translate to higher foreign patient loads at its Singapore hospital operations,” says Jaiswal.
He adds that the boost in Singapore’s medical tourism could also speed up the growth of Raffles Medical’s China operations. RHB expects the company’s China business — especially its Shanghai hospital — to ramp up gradually this year.
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The company maintained that its ebitda break even period for its China operations remains at two to three years, implying that the Shanghai hospital could record negative ebitda in 2023-2025. However, a faster-than-expected recovery in demand for healthcare in China amidst the country’s reopening could potentially bring forward this break even period.
Assuming no emergence of new variants, Ong believes that Raffles Medical’s healthcare and Covid-19 related services are likely to taper off in FY2023. However, the rollout of the “Healthier SG” initiative should benefit the company — under Healthier SG, general practitioners will get an annual service fee for each enrolled patient.
“The government’s push to focus more on preventive care will drive the group’s healthcare segment over the longer term, in our view,” says Ong.
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For 9MFY2022, Raffles Medical reported better-than-expected margins as the drop in costs from Covid-19-related business was faster and higher than the decline in revenue.
That said, Jaiswal maintains that labour constraints as well as higher costs of wages and energy may negatively impact its current elevated margin. Other healthcare players in Singapore are reporting a similar trend on the cost front as well, he notes.
Raffles Medical is trying to pass on some costs to patients, but it believes that it may not be sufficient. This, coupled with ebitda losses from its China operations, is why Jaiswal expects Raffles Medical to report lower y-o-y earnings in 2023 despite registering revenue growth.
The company is announcing its FY2022 results on Feb 27. Maybank forecasts Raffles Medical to report slightly above consensus 2HFY2022 PATMI of $60 million, driven by improvement in patient numbers and healthy margins along with efficient cost control and deployment of manpower. Based on its 50% payout ratio, Jasiswal expects a final dividend per share of 3.2 cents.
RHB's and Maybank's target prices for Raffles Medical are $1.65 and $1.44.
As at 12.06pm, shares in Raffles Medical closed 1 cent lower or 0.6% down at $1.49.
