Analysts at UOB Kay Hian, Maybank Securities and OCBC Investment Research (OIR) lift their target prices for Raffles Medical Group BSL (RMG) to $1.85, $1.65 and $1.60 respectively following the company’s FY2022 results announcement.
RMG announced record revenue and patmi at $766.5 million and $143.5 million respectively, forming 99% and 107.2% of UOBKH’s Llelleythan Tan Yi Rong’s full-year forecast. The analyst, who has maintained his “buy” call, expects revenue to soften in 2023 on the back of lower Covid-19 related revenue.
The company also recorded 61.4% y-o-y growth in operating profit, while operating margins expanded by 8.8 percentage points y-o-y. Llelleythan expects operating margins to contract slightly in 2023, dragged by higher inflationary cost push and an ongoing shortage of healthcare workers in Singapore.
Maybank’s Eric Ong, who has a “buy” call on the stock, highlights that RMG’s ebitda jumped 50% y-o-y to $129.1 million. The significant margin expansion comes from positive operating leverage. While he thinks that the company’s FY2023-FY2025 margins may come off from elevated levels, it should be partly supported by continued growth in foreign parents as well as pent-up demand from higher-margin electives.
Meanwhile, DBS Group Research's Rachel Tan expects RMG's earnings growth to moderate in FY2023, given the exceptionally high base. This could cap the share price upward momentum in the near-term, she adds.
DBS has downgraded RMG to "hold", with a lower target price of $1.48 from $1.64 previously.
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Backed by a robust balance sheet with net cash of $180 million, RMG is open to explore new business opportunities such as potential mergers and acquisition in other markets to further complement its existing healthcare services, Ong points out.
As part of its longer term growth strategy, RMG aims to expand in the Chinese healthcare market, OIR analysts say. It now has two international tertiary hospitals in Beijing and Shanghai, in addition to Raffles Chongqing hospital which opened in January 2019.
The gestation period for the Raffles Shanghai hospital — which opened on July 16, 2021 — was previously expected to take about three years based on the Chongqing hospital experience. However, it could be delayed due to pandemic impact, the analysts add. OIR has kept its “hold” call on RMG.
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Despite sporadic lockdowns in major cities, geographical revenue from China grew by 1.2% y-o-y in 2022. With the removal of China’s zero-Covid policy, hospital staff and patients are now able to commute freely, says Tan.
“Although ongoing Covid-19 waves have increased patient loads, it has created an unfavourable product mix which would likely compress margins. However, as Covid-19 eventually blows over in China, we are now more positive on the prospects of RMG’s Chinese hospitals and reckon that it would be its core revenue driver moving forward,” he adds.
UOBKH maintains its ebitda breakeven level timeline for Raffles Hospital Chongqing at 3QFY2023 and Raffles Hospital Shanghai at 4QFY2025 respectively.
Llelleythan raises his FY2023 and FY2024 earnings forecasts, aside from adding his FY2025 earnings estimates on the back of higher hospital revenue assumptions. The analyst now expects 2023-2025 patmi of $129.4 million, $108 million, and $100.9 million respectively.
Meanwhile, Maybank’s Ong raises his FY2023-FY2024 EPS forecasts by 9%-12% on better margins assumption.
As at 9.36am, shares in RMG are trading 2 cents higher or 1.43% up at $1.41.
