As flagged by the management, Raffles Medical Group BSL (RMG) has reported a set of FY2023 ended December 2023 earnings that shows a normalisation of the pandemic highs. Going forward, the company will channel more focus on its overseas expansion.
In FY2023, RMG’s earnings dropped by 37.1% y-o-y to $90.2 million, while revenue was down 14.1% y-o-y to $706.9 million, mainly due to the discontinuance of Covid-19-related activities in FY2023.
RMG’s healthcare services division, its core business, recorded a revenue of $283.4 million, down from $445 million in FY2022. Its smaller investment holdings division dipped slightly to $45.2 million in FY2023 from $45.9 million in FY2022.
As for its hospital services and insurance services divisions, both managed higher revenue but not enough to offset the revenue decline in healthcare services.
“Our results now are normalising. The Covid-19 impact is small now that it is not a pandemic issue,” says Dr Loo Choon Yong, executive chairman of RMG. Despite the earnings drop between FY2023 and FY2022, he points out that the company has maintained consistent growth over the long term.
In pre-Covid FY2019, RMG reported earnings of $58.1 million. In line with the lower earnings, RMG plans to pay a final dividend of 2.4 cents, representing a payout ratio of around 50%, which is at the same level as its FY2022 payout of 3.8 cents.
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Eye on growth
Moving forward, RMG will continue to embark on transformative growth strategies and build on existing strengths through its network of hospitals and clinics across 14 Asian cities.
With patient numbers growing and needs evolving, the group expects to increase its manpower capabilities across all its operations while fine-tuning its management strategies, including enhancing its teleconsultation platform to handle patient growth efficiently and enhance patient experience.
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Dr Loo says: “More importantly, it’s not just about us digitalising consultations to look after our patients better. We are also incorporating artificial intelligence (AI), which will come at a high price, but can help us be more efficient, take out the pain of (mundane work) in the healthcare industry and be more consistent.”
In Singapore, the group will draw on its operational strengths and drawing on experience accumulated from operating transitional care facilities (TCFs); it continues to collaborate with the Ministry of Health (MOH) to operate step-down care facilities with 176 additional beds dedicated to the TCF programme, thus improving the scale of its operations.
The way Dr Loo sees it, there is only so much space to grow in Singapore. He is, therefore, looking for growth overseas. Last year, for example, RMG signed a strategic partnership to manage American International Hospital (AIH) in Ho Chi Minh City. Vietnam has yet to contribute meaningfully to its accounts, but Dr Loo intends to invest in other hospitals in Vietnam and launch medical centres there. “More and more of our bottom line will be contributed by the regional businesses. How many more hospitals can Singapore have with only 5.5 million people?”
RMG already has a significant presence in China but is looking for more growth opportunities, be it brownfield or greenfield. The company is scouring other economies, too, where there is still growing demand for high-end healthcare services despite the economic slowdown. RMG continues to explore new business opportunities with Japan.
The company already operates a large medical centre in Osaka that is contributing and profitable. This year, it is eyeing Fukuoka and later Tokyo.
Analysts mostly ‘neutral’
Analysts have mostly kept a “neutral” stance on the counter, as they wait to see what kind of growth the “normalised” FY2024 will bring, even as they maintain an upbeat view on the company over the medium to long term. “Moving into 2024, we reckon that earnings have bottomed out in 4QFY2023 and would improve sequentially in 1HFY2024,” state UOB Kay Hian’s Llelleythan Tan and Heidi Mo.
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“Although we are bullish on RMG’s expansion in China and Vietnam and potential new acquisitions in the medium to long term, we see limited upside potential in share price performance given increasing margin pressure and ongoing gestation losses from the Chinese hospitals. In our view, we reckon that RMG is fairly valued at current price levels,” add Tan and Mo. They have kept their “hold” call and $1.15 target price.
“In the medium term, we remain positive about the prospects of its China operations with a further upside from its fourth hospital in the long term,” says Rachel Tan of DBS Group Research, who has kept her “hold” call and $1 target price.
Similarly, PhillipCapital’s Paul Chew has an unchanged “neutral” recommendation and a target price of 96 cents. He warns that earnings may soon weaken due to start-up losses in China and a structural decline in higher-margin foreign patients. “Singapore healthcare enjoyed a head start in the region as a hub for healthcare. Lower costs and improving services around the region are narrowing the gap. Indonesia allowing foreign medical specialists to practise may lower the need for patients to seek treatment overseas,” says Chew. According to Dr Loo, he is mulling over an invitation by the Indonesian government to set up shop in the country.
CGS International’s Tay Wee Kuang is more upbeat on the stock, with an “add” call and $1.16 target price, as he sees the group as “well positioned for overseas expansion”.
