Analysts from CGS-CIMB Research and PhillipCapital are keeping their “hold” and “neutral” recommendations on Raffles Medical Group, in contrast to the “buy” calls put forward by analysts from DBS Group Research, Maybank Securities and RHB Group Research.
CGS-CIMB analyst Tay Wee Kuang has lowered his target price estimate to $1.33 from $1.44 as the group’s core net profit for the FY2021 fell short at 91% of his full-year estimate.
See: Raffles Medical posts 27.7% increase in FY2021 earnings to $84.2 million; declares final dividend of 2.8 cents
“The exceptional growth in FY2021 will be hard to beat,” writes the analyst in his Feb 22 report.
With that, he has lowered his earnings per share (EPS) estimates for the FY2022 to FY2023 by 21% - 23% to “reflect normalised earnings amidst a challenging operating environment”.
His revised target price also reflects a lack of catalysts, although Tay notes that the group’s valuations are currently undemanding at 15x forward EV/EBITDA, close to 1 standard deviation (s.d.) below its five-year mean.
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“With Singapore moving ahead with [the] re-opening the economy as well as relaxation of preventive measures, such as testing guidelines for travellers, we are expecting Covid-19 contributions to decline by 70% from an estimated $220 million in FY2021 to [around] $70 million per annum (p.a.), flat, in FY2022 – FY2024,” writes Tay.
As Singapore moves to treat Covid-19 as an endemic, Tay says the group’s operating metrics in its flagship hospital in Singapore should improve.
“However, the competition for foreign patients has become stiffer as the healthcare quality of regional peers, such as Malaysia, Indonesia and Thailand improve, with better affordability compared to Singapore,” he adds. “Nevertheless, Raffles Medical Group continues to provide healthcare services to its foreign patients via means such as teleconsultation through its network.”
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In China, the country’s zero Covid strategy has resulted in prolonged operational constraints for the group. As a result, the group’s gestation period for its hospitals in Chongqing and Shanghai could be extended by six to 12 months on the back of a slower uptick in patient loads.
On this, Tay has pushed back his total EBITDA contribution estimates from China to FY2024.
PhillipCapital analyst Paul Chew has also lowered his target price to $1.27 from $1.35 previously as he expects FY2022 to be a weaker year for Raffles Medical Group.
The lower estimate is attributable to the expected decline of Covid-19-related services from reduced polymerase chain reaction (PCR) swab tests and fewer vaccination programmes, full-year losses from Raffles Hospital Shanghai and a slower recovery in foreign patients, notes Chew.
“Foreign patient volume may be softer than pre-pandemic levels due to regional competition and substitution with local healthcare,” he adds.
To this end, Chew has also cut his earnings estimates for the FY2022 by 8%. He has also raised his discount rate from higher risk-free assumptions.
“There will be some downtime in earnings until volume from foreign patients recovers and hospitals in China achieve scale and profitability,” says Chew.
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“We expect losses in China to widen further from an estimated EBITDA loss of $12 million in FY2021 to $18 million in FY2022. Full-year operations of Raffles Hospital Shanghai is the main cause for the widening losses. Since its July 2021 opening, the hospital has operated only at a limited scale, as it is dependent on licensing and arrival of equipment,” he adds.
As at 2.01pm, shares in Raffles Medical are trading 3 cents lower or 2.48% down at $1.18, or an FY2022 P/B of 2.4 times and a dividend yield of 2.3%, according to PhillipCapital’s estimates.
Cover image of Raffles Medical's executive chairman Dr Loo Choon Yong: Albert Chua/The Edge Singapore
