RHB Bank Singapore analyst Shekhar Jaiswal is keeping his “buy” call on Raffles Medical Group BSL with an unchanged target price of $1.75.
Jaiswal’s report, dated Sept 28, comes after the group beat a total of nine bidders and was awarded the contract to continue providing medical services at Connect@Changi as a transitional care facility or Covid-19 treatment facility at Hall 9 and as a Covid-19 treatment facility at Hall 10.
The contract period begins from Sept 20 and ends on Feb 9, 2025. Raffles Medical had the lowest bid value of $151,392.
According to Jaiswal, the bid was broken down into one-off costs related to setting up the facilities, a monthly retainer fee for maintaining the facilities in standby mode and providing medical treatment services on a per-bed per-day basis for a minimum occupant quantity (MOQ), and per patient per day for patient load above the MOQ. Each bidder had placed a bid for different levels of MOQ.
“We are upbeat on this win, as it will continue to underpin strong revenue from Raffles Medical’s Singapore unit while its China hospital ramps up operations and heads towards a breakeven point (in 2-3 years). Raffles Medical’s one-year forward P/E and FY202 implied P/E based on our target price remains well below the regional peer average,” Jaiswal points out.
Assuming that the MOQ levels are utilised at both facilities, the win may bring Raffles Medical a total revenue of $23.3 million over the contract period, he adds.
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If the MOQ level of the transitional care facility is utilised only, the revenue for the same period would be at $11.3 million, the analyst continues.
“Our current forecasts already factor in the growth in its Singapore revenue in FY2024 to FY2025, backed by a higher number of medical tourists and the continuation of the current [facility] services,” he writes.
Overseas, Jaiswal sees Raffles Medical’s China operati as a long-term growth driver.
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The group is managing hospitals in Shanghai, Chongqing and Beijing, and recently opened a centre for assisted reproductive therapy and in vitro fertilisation in Hainan, which could benefit from the recent relaxation of China’s one-child policy.
“Our earnings projections remain unchanged. Raffles Medical has a $1 billion multicurrency medium-term notes programme on top of a $208 million net cash position – which will allow it to make earnings-accretive acquisitions if a chance arises in Indonesia, Vietnam, China, or Thailand,” says Jaiswal.
His target price includes a 2% environmental, social and governance (ESG) premium due to Raffles Medical’s higher-than-average score of 3.1 out of 4.
Shares in Raffles Medical closed 1 cent higher or 0.8% up at $1.26 on Oct 2.
