RHB Group Research analyst Shekhar Jaiswal has kept “buy” on Raffles Medical while lowering his target price to $1.60 from $1.65 previously.
In his report dated Oct 13, Jaiswal also reduced his earnings estimates for the group by 3% each for the FY2023 and FY2024.
The lowered target price and earnings estimates came after the analyst’s meeting with Raffles Medical’s management.
“Despite Covid-19-related revenue declining and cost headwinds comprising near-term concerns, the revival of its healthcare and hospital business in Singapore remains strong,” says Jaiswal, who remains upbeat about the group’s long-term growth.
The local healthcare business, which mainly comprises over 50 general practitioner (GP) clinics, saw a sharp growth in revenue during the Covid period from 2021 to 2022, the analyst notes.
“Raffles Medical indicated that the current patient load at its GP clinics is higher compared to that of the pre-pandemic period (i.e. 2019),” he writes. “It continues to realign its clinic network with a focus on demographics and demand centres, which means greater focus on suburban clinics as there were fewer corporate customers visiting the central business district GP clinics during the Covid-19 years.”
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“While the use of telemedicine was quite prevalent during the pandemic, the group believes the service will continue to complement its GP clinic network and is unlikely to replace current healthcare operations,” he adds.
However, the analyst foresees the elevated profit before tax (PBT) for Raffles Medical’s healthcare business to gradually taper off beyond 2023 and return to pre-pandemic levels as Covid-19-related revenue completely disappears.
In China, Jaiswal sees that the group’s business growth in the country is highly dependent on China moving away from its zero-Covid-19 policy.
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“Management maintained that the ebitda breakeven period for its China operations remains unchanged at two to three years, but the year of achieving such a breakeven will depend on how soon China moves away from its zero-Covid policy,” Jaiswal notes.
“While Raffles Medical’s China business has seen a steady increase in the number of patient visits, we have revised our view that its Shanghai hospital could see a gradual ramp-up in operations only in 2023 (vs earlier expectations of a ramp-up in 2HFY2022),” he adds.
That said, Jaiswal sees that the group’s strong cash flow generation and “well-funded war chest” are positive for the group as it creates inorganic growth opportunities in China and the Asean region.
In his report, the analyst notes that the group has a net cash position of $135 million. He also expects the group to generate over $100 million of free cash flow in in the FY2022 to FY2024 as there is limited need for capital expenditure (capex) spending. Raffles Medical had also announced the establishment of a $1 billion multicurrency medium-term notes programme with DBS on July 30.
As at 9.40am, shares in Raffles Medical are trading 1 cent higher or 0.82% up at $1.23.
