SINGAPORE (Oct 30): Raffles Medical Group reported 3Q18 earnings remain unchanged at $16.4 million compared to the previous year.
Revenue saw a slight 1.2% y-o-y increase to $121.4 million, as the group’s healthcare services division recorded an 8% growth in revenue due to an influx of new corporate clients and a new contract to provide Air Borders screening services.
See: Raffles Medical Group's 3Q18 earnings come in flat at $16.4 mil
Following the results announcement, CGS-CIMB Securities is maintaining its “hold” call on Raffles Medical, premised on upcoming gestation costs from the group’s overseas expansion, with a target price of $1.19.
According to management, the group’s Chongqing hospital remain on track to open in 4Q18, barring any delay in regulatory approvals. The group is currently hiring its staff for the hospital and has already recruited about 100 staff, of which 50 will be clinical staff.
In a Monday report, analyst Ngoh Yi Sin says, “While 3Q18 saw little contribution from the recently launched Raffles Integrated Shield Plan, there was good progress with a couple of hundred sign-ups.”
The group has partnered China Taiping Insurance Group and intends to leverage on its expertise and network of more than 450,000 agents in China to jointly develop and sell insurance products and healthcare solutions.
Meanwhile, RHB is also reiterating its “neutral” recommendation on Raffles Medical with a target price of $1.02.
In a Monday report, analyst Juliana Cai says, “The Singapore market remains rather unexciting. The Raffles Hospital opened a new inpatient ward, and continuing renovation works ought to add more inpatient capacity next year. However, we are not overly optimistic on the growth of local hospital services, as we believe weakening regional currencies will continue to slow down demand for medical tourism.”
In addition, the Chongqing hospital is expected to open by 4Q18 and Shanghai Raffles Medical in 2H19.
“We expect earnings to trend downwards over the next two years, as Raffles Medical’s new hospitals ramp-up. A faster breakeven period will be a key catalyst to drive higher share price,” adds Cai.
On the other hand, UOB KayHian is keeping its “buy” call on Raffles Medical with a target price of $1.27.
Despite the group’s earnings coming in within the research house’s expectations, the foreign patient segment continues to be under pressure on the back of higher treatment and ancillary costs in Singapore.
Recently, the Ministry of Health (MOH) has prohibited foreign agents who refer patients to public hospitals. The group’s management expects some spillover effect into the private sector although the industry remains weak as a whole.
In a Tuesday report, analysts Lucas Teng and Andrew Chow say. “Going forward, we do see some slight effects of slowing revenue growth, with weaker foreign patient volume as an impeding factor.”
Although the group’s effective cost management has helped to mitigate the slowdown in revenue, guidance for Chongqing hospital start-up losses remain unchanged at an expected EBITDA loss of about $10 million in the first year of operation.
Hence, the analysts has tweaked their 2019-20 net profit forecasts down by up to 3% as they factor in slower revenue growth from weaker foreign patient volume.
“However, we remain upbeat on the company’s prospects in its expansion efforts in China, given the recent insurance partnerships and staffing progression,” says Teng and Chow.
As at 11.03am, shares in Raffles Medical are trading 4 cents lower at $1.05, giving it a FY19 price-to-book ratio of 2.5 times, with a dividend yield of 2.1%.
