SINGAPORE (Feb 27): OCBC Investment Research, Phillip Capital and UOB Kay Hian are maintaining their “buy” calls on Raffles Medical Group with a fair value estimate and target prices of $1.26, $1.32 and $1.32 respectively.
This comes after the group on Monday concluded FY17 with earnings of $70.8 million, up 0.8% compared to a year ago and in line with both research houses’ full-year expectations.
See: Raffles Medical reports 0.8% rise in FY17 earnings to $70.8 mil
In a Tuesday report, OCBC lead analyst Joseph Ng says he foresees a number of bright sparks for the group going forward which should help to drive greater loads towards the group’s clinics, increase utilisation, and contribute towards fixed costs.
These include stronger contributions from Raffles Holland V; top-line growth from the latest opening of Raffles Specialist Centre, the Raffles Hospital extension; as well as the recently-awarded Air Borders Screening contract at Changi and Seletar Airports.
“We are also encouraged by RMG’s 5-year partnership with the Ministry of Health and the Agency for Integrated Care from Jan 2018 through three Primary Care Network clusters around Singapore to better manage chronic conditions,” he adds.
Phillip Capital, on the other hand, is positive on RMG’s outlook in the medium term despite noting margin pressures and start-up costs from the gestation of its two Chinese hospitals.
“We remain upbeat on the potential growth that these new hospitals in China would bring to the group: diversification with a higher contribution for overseas operation; and tapping into China’s growth,” states Phillip analyst Soh Lin Sin in a separate report.
Soh also projects the new growth avenues from public service outsourcing to potentially add another 5% to the group’s revenue growth from Healthcare service, thanks to initiatives including the Air Borders Screening project.
While UOB analyst Andrew Chow says he expects the group’s earnings outlook for the next two years to be lacklustre, he expects its long-term growth potential for next decade to be “significantly enhanced” given a near-quadrupling of capacity upon the full opening of its hospitals in China.
“We trim our 2018-19 net profit forecasts by up to 3% as we build in higher expansion costs. We also introduce our 2020 earnings forecast. Raffles Medical’s net profit is expected to decline gradually and is expected to trough in 2019 upon the opening of its Shanghai hospital. Thereafter, we expect a gradual recovery,” says Chow.
Maybank Kim Eng analyst John Cheong, however, remains less optimistic on the stock and maintains its “hold” rating at a target price of $1.13 on expectations of startup costs to peak in 2H19 when the Shanghai Hospital commences operations.
“For FY18, the healthcare business should pick up slightly and rental income should increase from two projects, but these will be negated by the start-up costs for the Chongqing hospital,” predicts Cheong.
As at 2.51am, shares in RMG are trading 6 cents higher at $1.16, or 30.2 times FY18 earnings according to OCBC estimates.
