SINGAPORE (Dec 5): UOB Kay Hian is reiterating its “buy” call on Raffles Medical Group with an increased target price of $1.30 from $1.27 previously.
This came on the back of the Ministry of Health (MOH) publishing its fee benchmark guidelines for surgical procedures to contain exorbitant fees in the private sector. The Fee Benchmark report noted that private inpatient bills grew at 9.0% per year (from 2007-2017) compared with 4.9% per year for Class A (public sector) inpatient bills.
This is part of MOH’s larger strategy to ensure the affordability of healthcare costs and the sustainability of the healthcare system. It also complements other measures, such as the introduction of a co-payment requirement for new Integrated Shield Plan riders, and moving upstream in health promotion and disease prevention.
Fortunately for Raffles Medical, the benchmark is non-binding. It merely serves as a common reference rather than a strict cap that needs to be adhered to.
In a Wednesday report, lead analyst Lucas Teng believes that the effects of the benchmark may not be largely felt for Raffles Medical.
To note, surgical procedures only make up about 30% of an inpatient bill, or about 50% of a day surgery bill on average. The rest of the bill is made up of other fees for facilities and implants.
In comparison to its private healthcare peers, the group’s fees are generally in the mid-range. Thus, curbs to high medical expenses are unlikely to affect the group proportionately.
“Raffles Medical’s in-patient treatment and operations have also been subjected to peer reviews as well as clinical audits, and in our view, this helps avoid unnecessary procedures or treatments with excessive fees,” says Teng.
Meanwhile, according to medical trends reports from insurers Aon and Willis Towers Watson, medical plan costs in Singapore are still set to increase at a slightly higher pace in 2019. Medical inflation is affected by macro factors, such as shortage of facilities and capacity from ageing population.
“Hence, we are of the view that the pricing fundamentals will remain strong in the long term,” says the analysts.
As at 11.15am, shares in Raffles Medical are trading 2 cents lower at $1.18 or 2.7 times FY19 book with a dividend yield of 1.9%.
