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

RAFFLES MEDICAL GROUP LTD (SGX:BSL)

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.

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.

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.

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.

We trim our FY20-21F EPS by 1.3-4.4% to factor in disruption from Covid-19 and slight delay in the opening of its Shanghai hospital, but reiterate our Add call and SOP-based Target Price of S$1.16.
Our investment thesis of the stock is unchanged: bottoming out of FY20F earnings, undemanding valuation of 1 s.d. below its 5-year historical mean and improving ROEs.
See Raffles Medical Share Price; Raffles Medical Target Price; Raffles Medical Analyst Reports; Raffles Medical Dividend History; Raffles Medical Announcements; Raffles Medical Latest News.
Catalysts: faster ramp-up of Chongqing and favourable healthcare reforms in China.
Downside risks: protracted virus situation and slower medical tourism.

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