Raffles Medical Group - CGS-CIMB Research 2020-02-24: The Cloud Shall Pass


Raffles Medical Group - The Cloud Shall Pass

  • Raffles Medical (SGX:BSL)'s 4Q/FY19 in line. Reiterate ADD, with lower EPS forecasts but unchanged Target Price.
  • Except in a prolonged Covid-19 situation, Raffles Medical expects local operations to remain resilient for FY20F.
  • We see the recent Yibao approval, possible delay in Shanghai hospital opening and further China healthcare reforms as positives for the stock.

FY19 earnings decline within expectations

  • Raffles Medical (SGX:BSL) reported a FY19 net profit of S$60.3m, down 15.2% y-o-y mainly on gestation loss from its Chongqing hospital. Chongqing’s S$9.2m EBITDA loss was in line with management’s earlier guidance; without the drag, RFMD’s FY19 EBITDA would have increased 11.8% y-o-y. Excluding a S$2.1m fair value gain, FY19 core PATMI of S$58.1m accounted for 100%/96% of our/consensus full-year forecasts.
  • Raffles Medical proposed a final DPS of 2 Scts, bringing FY19 DPS to 2.5 Scts (unchanged y-o-y), implying a 2.5% dividend yield and 75% payout ratio.
  • Backed by its strong operating cashflow and nearing the end of its expansionary capex cycle, Raffles Medical has a low 5.7% net gearing as of Dec 19.

Resilient domestic operations; unfazed by Covid-19

  • Healthcare services revenue rose 9.0% y-o-y in FY19, thanks to more corporate clients and expanded service offerings for existing and new insurance contracts. Higher patient load drove the 5.9% y-o-y growth in hospital revenue.
  • While Raffles Medical has seen delays of some elective procedures due to the ongoing Covid-19 outbreak, management does not expect significant impact on its domestic business in FY20F unless the outbreak is prolonged, given that:
    1. this coincided with a seasonally weak period of CNY,
    2. the availability of telemedicine as an alternative channel for consultation, and
    3. patient volumes rebounded strongly in both its clinics and hospitals post-2003 SARS.

China opportunities in Yibao and Covid-19

  • Raffles Medical’s Chongqing hospital has attained Yibao (China’s social health insurance) approval in early Feb and is now operating round the clock amid the Covid-19 situation in China. We see Raffles Medical as a potential beneficiary of more Yibao volumes (improved affordability), as well as redirection of patient footfall from the possibly overcrowded public hospitals.
  • While preparation for its second China hospital in Shanghai remains underway, we think its opening could be delayed until Shanghai returns to normalcy. Management maintains its start-up loss guidance for both hospitals over FY20-21F.

Reiterate ADD

NGOH Yi Sin CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-24
SGX Stock Analyst Report ADD MAINTAIN ADD 1.160 SAME 1.160