Raffles Medical Group - UOB Kay Hian 2020-02-25: 4Q19 In Line; But Could Be Catching A Cold In The Near Term


Raffles Medical Group - 4Q19 In Line; But Could Be Catching A Cold In The Near Term

  • Raffles Medical reported 2019 net profit of S$58.1m (-14% y-o-y), in line with our expectations.
  • The COVID-19 situation will likely postpone non-essential medical demand and affect hospital patient load in the interim. However, the group’s operations in Chongqing Hospital continue to be on track while Yibao (social health insurance scheme) looks set to kick into gear. Maintain BUY with a lower DCF-based target price of S$1.21.


Results in line with expectations.

  • Raffles Medical (SGX:BSL) announced 2019 net profit of S$58.1m, down 14% y-o-y, representing 102% of our forecast, in line with expectations. 4Q19 net profit stood at S$16.6m. The group declared an unchanged final dividend of 2 S cents (2018: 2 S cents)

2019 revenue up from healthcare services.

  • Revenue was up 6.7% y-o-y each in 4Q19 and 2019. Hospital services revenue increased 5.9% y-o-y in 2019, largely underpinned by first-year operations of Chongqing Hospital. Healthcare services revenue increased 9.0% y-o-y in 2019.

Operating margins still impacted by gestation losses at Chongqing Hospital.

  • Purchased and contracted services expense increased 19.2% y-o-y in 4Q19 while staff cost increased 13.8% y-o-y, at a slightly higher pace from 3Q19.
  • Overall operating margin was down to 17.7% (from 20.2% in 4Q18). The group’s gestation loss for Chongqing Hospital is still within expectations, with EBITDA loss of S$2.2m in 4Q19.


COVID-19 not ideal for hospital operations.

  • The Coronavirus (COVID-19) would likely have an impact on foreign patient load as well as non-essential medical services for RMG hospital services. During the SARS period in 2003, management noted that its clinic networks revenue were down 4% y-o-y while its newly-opened Raffles Hospital topline grew on a full-year basis.
  • We noted that public hospitals saw a y-o-y dip of 26-36% in admissions for the affected months of Apr-Jun 03, and a 13% drop on a full-year basis. Assuming two quarters of impact from COVID-19, management expects its top-line to be down by approximately 6% y-o-y for 1H20.
  • Raffles Medical noted that other medical services such as border screenings as well as its tele-consultation services have been ramped up in recent weeks, which may help offset some of the fall in non-essential medical demand.

Managing the China front.

  • The Chongqing Hospital has obtained approval to be one of the designated hospitals covered by China’s social health insurance scheme (Yibao). Under this scheme, local patients will be able to claim medical expenditures incurred at the hospital.
  • Management also noted a change in the hospital’s regulation for Yibao, as it now will not be restricted to operating 100 beds under the public social insurance, but would be able to open up larger bed occupancies for Yibao, This could open up a larger market size for Chongqing Hospital, though management is cognizant of allowing a good mix of affordable as well as premium medical care.


  • Lower earnings forecasts by up to 10% for 2020-21F, on a lower patient load from COVID-19. We opine that the recovery may stretch out over a few quarters as patient demand settles back into the norm if the COVID-19 situation dissipates.



  • Potential catalysts include:
    1. faster-than-expected ramp-up of new specialist centre, and
    2. better-than-expected ramp-up of new hospitals in China.

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-02-25
SGX Stock Analyst Report BUY MAINTAIN BUY 1.21 DOWN 1.270