SINGAPORE (Aug 1): RHB and Maybank Kim Eng are downgrading their call on Raffles Medical Group to “sell” with target prices of $1.10 and $1.12 respectively.
The rating comes on the back of near-term earnings support coming from non-core rental income, structural decline in in domestic healthcare demand and losses in the group’s startup hospitals in China.
In a Tuesday report, Maybank analyst John Cheong says topline growth for Singapore remains weak at only 1% y-o-y for 2Q.
See: Raffles Medical 2Q earnings marginally higher at $16.8 mil
Management says the market remains challenging as Singapore’s high cost structure makes it less attractive to medical tourists. In fact, revenue growth has been weak for three straight quarters, ranging from -2 to +3% y-o-y.
“Also, we believe Raffles Medical could be losing market share, as we note that IHH Healthcare's Singapore operations have reported better revenue growth in most of the preceding quarters,” says Cheong.
Meanwhile, RHB analyst Juliana Cai says Raffles Medical’s stock has turned bearish as its near-term growth is mainly supported by rental income, instead of organic growth.
“Henceforth, while we expect an uplift in FY18F revenue driven by the hospital extension (open in 4Q17), we think most of it is still coming from rental income as 50% of the new space would be let out,” says Cai.
While the still constructed Chongqing and Shanghai hospitals will be starting operations in 2H18 and 2H19 respectively, Cai estimates both hospitals will generate operating losses amounting to about $24 million in its first two years of operations before reaching positive EBITDA.
As at 9.52am, shares in Raffles Medical are trading 5 cents lower at $1.24.
