UOB Kay Hian analysts Lucas Teng and John Leong have maintained their “buy” call on Raffles Medical Group with an unchanged target price of $1.07.
The analysts called the group a “laggard on the recovery theme” and expect local patient load to reach “normalised levels that are on a par with pre-Covid-19 admissions.”
They note that medical services have largely seen a recovery in 2H2020, with private hospital admissions in Singapore down by only 9% y-o-y in Oct 2020.
They think that demand for domestic medical services have largely normalised whereas the remaining portion of demand could be made up of medical tourists, which is still lacking. Overseas, they note that the private hospital bed utilisation rate in Chongqing has grown y-o-y in recent months.
Furthermore, with the news of the vaccine in Singapore, Teng and Leong add that Covid-19 opening of the hospital, which could help contain costs.tests and vaccine administration would provide marginal support if private GP clinics are utilised for such purposes.
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They elaborate that with the expectations of a re-opening of travel borders, Covid-19 polymerase chain reaction (PCR) tests have been made available for travellers at the Raffles Medical Group (RMG) network of clinics, which could be increasingly utilised as air travel returns.
Looking forward to local vaccine administration, general practitioner (GP) clinics will likely be utilised, similar to the model of administration in the UK.
Overseas, the group is also expected to complete its Shanghai Hospital in the near term, with an expected date of 4Q2020, although the analysts think that a launch could take place post- Chinese New Year in 2021.
Similar to the Chongqing hospital, the Shanghai hospital would likely see a phased opening where services pertaining to dental needs and health screenings might be offered initially. RMG could also utilise its specialists in China to assist with the initial opening of the hospital, which could help contain costs.
As such, they expect earnings to recover by approximately 50-60% h-o-h in 2H2020, though it could still be down by about 10-15% y-o-y.
SEE: Raffles Medical Group upgraded to 'buy' on improved risk-reward: Maybank
“RMG remains well positioned, with a strong balance sheet and longer term benefits of expansion into the China hospitals segment. In our view, local medical services have shown a resilient recovery and news of returning foreign patient load would be a positive for the group.” Leong and Teng said.
As at 3.16pm, shares of RMG were trading at 90 cents, with FY2020 price to book ratio of 1.8 and dividend yield of 2.9%.
