SINGAPORE (Feb 21): The research houses of CIMB, RHB and DBS are reiterating their divided opinions on Raffles Medical Group after it on Monday reported a 1.3% rise in FY16 earnings to $70.2 million on higher revenue.
(See also: Raffles Medical’s FY16 earnings rise 1.3% to $70.2 mil on higher revenue)
For starters, CIMB Research maintains its “reduce” rating on the stock with an unchanged price target of $1.46, noting negative earnings growth in terms of fourth quarter results.
CIMB analyst Jonathan Seow says in a Monday report that the 1% dip in y-o-y revenue is “uncharacteristically weak” as 4Q is “typically a seasonally stronger quarter”. He also suspects that contributions from the group’s recently acquired International SOS (MC Holdings) operations came been below expectations.
“On a strategic level, this group of clinics was meant to further the Raffles brand into other regions and eventually act as a hub-and-spoke model to help feed patients into the group’s Shanghai hospital. However, operations appear to be struggling and losses have been widening. Ex-International SOS, group operating profit climbed 4.4% y-o-y,” he comments.
On the contrary, RHB is keeping its “buy” recommendation on Raffles Medical Group on the belief that the stocks’ current valuation is still undemanding. The research house has lowered its target pric eon the stock to $1.72 from $1.76 previously, as it now expects slower patient load growth in the Singapore healthcare sector.
Juliana Cai, an analyst at RHB, says it still remains her preferred stock for large-cap exposure in the healthcare sector, and thinks the group will continue to perform with the turnaround of medical centres this year.
“We believe that Raffles Medical is on the right track to turn International SOS around by 2017,” adds Cai based her observations of lower staff costs and operating expenses over previous quarters.
DBS Group Research, however, continues to keep its “hold” call on the stock, lowering its target price from $1.43 previously to $1.40 on expectations of lower FY17-18F earnings, as it believes the counter has reflected its growth potential at its current valuation.
“We project growth over the next few years to be a tad slower than its historical average following gestation period from its expansion plans,” say DBS analysts Rachel Tan and Andy Sim in a report on Tuesday.
Like the analysts at RHB and CIMB, the research house notes marginally weak 4Q16 results and slower growth in the near-term due to gestation costs. At the same time, it remains positive on the group’s long-term growth plans with the upcoming completion of its Raffles Hospital Extension by 4Q17 as well as Shanghai Hospital by late 2018.
“Potential re-rating catalysts are better-than expected ramp-up of new projects/integration process, and further accretive acquisitions and/or JVs/strategic alliances for entry into new markets,” say Tan and Sim.
As at 10.50am, shares of Raffles Medical Group are trading 0.7% lower at $1.45.
