Raffles Medical Group - RHB Invest 2020-02-25: Under The Weather; Maintain NEUTRAL


Raffles Medical Group - Under The Weather; Maintain NEUTRAL

  • Maintain NEUTRAL, new Target Price of SGD0.96 from SGD1.02, 6% downside with 2.5% FY20F yield.
  • Raffles Medical (SGX:BSL)’s FY19 earnings are largely in line with our estimate. However, we have become more cautious on its near-term outlook, as existing operations are likely to be impacted by the COVID-19 outbreak. The opening of the Shanghai hospital (RHSH) will also be delayed, until the situation in China normalises.
  • We cut FY20-21F earnings by 14%/12%, which results in a lower DCF-derived Target Price.

FY19 core PATMI at SGD58.1m (-14% y-o-y)

  • This met 97% of our full-year estimates. Its topline grew 7% y-o-y, driven by an increase in corporate clients and insurance contracts for the healthcare services segment, as well as the higher patient load in the hospital services division.
  • However core PATMI fell 14% y-o-y due to the gestation cost stemming from the opening of Raffles Hospital Chongqing (RHCQ).

Topline contributions from China operations remain small.

  • Raffles Medical's revenue from Greater China inclusive of clinics, medical centres and RHCQ remained flattish y-o-y, at SGD40m (8% of total revenue). As such, we believe the topline contribution from RHCQ was negligible in FY19. That said, the EBITDA loss from RHCQ remained within management’s guidance, at SGD9.2m.
  • Moving into 2020, we expect stronger revenue contributions from the facility as it received the permit to accept China’s social health insurance (YiBao) as partial payments. This should help to improve the affordability of RHCQ, and boost the local patient load.

Caught a cold from COVID-19.

  • Management expects the Singapore business to see revenue declining by c.5% y-o-y in FY20, as medical tourism declines further due to the COVID-19 outbreak. Meanwhile, local patients are delaying elective treatments until the outbreak has dissipated.
  • Revenue from China is expected to decline by c.10% y-o-y. We believe this will be partially offset by the increase in insurance contracts, the maturing of RHCQ, as well as the opening of RHSH in 2H20, when the virus outbreak subsides.
  • Management also guided for a larger EBITDA loss of SGD6m (from SGD4-5m) for RHCQ’s second year of operation, as a result of the outbreak.

Lower earnings forecasts and Target Price.

Juliana Cai CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-02-25
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.96 DOWN 1.020