RAFFLES MEDICAL GROUP LTD (SGX:BSL)
Raffles Medical Group - Looking Beyond COVID-19
Upside attractive despite weak 1Q20; Upgrade to BUY
- Raffles Medical (SGX:BSL)'s 1Q20 net profit of SGD7.5m (-45.4% y-o-y) accounted for only 14% of our FY20E. Excluding the impact of Covid-19 on China operations, net profit would have been SGD15.1m (-5.1% y-o-y), or 25% of our FY20E.
- We cut FY20-22E net profit by 10-25% and trim DCF Target Price to SGD0.99 (WACC: 9%, LTG: 3%) to factor in the latest update.
- Given a 13% YTD Raffles Medical's share price correction, strong balance sheet, and that operating metrics should improve upon the easing of COVID-19 restrictions, we upgrade Raffles Medical to BUY from HOLD.
COVID-19 disruptions weighed on China operations
- Raffles Medical's 1Q20 revenue was flattish (-0.3% y-o-y) at SGD128m. Some of Raffles Medical's China clinics were instructed by authorities to close, while Raffles Hospital Chongqing (RHCQ) had to operate with a significantly lower patient load due to movement restrictions.
- We believe that sticky costs despite reduced China contributions drove EBITDA down by 12.7% to SGD20.6m. However, as China begins its recovery, Raffles Medical is noting a return of walk-in patients.
Balance sheet still strong
- Since late-Mar, Singapore hospitals, including Raffles Hospital, have been advised by the government to not accept inbound foreign patients. We believe the adverse impact of this may be partially offset by the government’s co-funding of local employees’ wages from the Solidarity and Resilience Budgets. Balance sheet remains strong with net gearing of 3%.
- Raffles Medical has ~SGD200m of unutilised bank facilities available.
Value emerging for long-term investors
- Raffles Medical's share price has corrected 13% YTD. While the effects of COVID-19 imply heightened earnings risks in FY20-21E, we believe long-term growth drivers are unchanged as populations in Singapore and China are aging. As such, we see any near term share price volatility as an opportunity to buy on dips.
- During the Mar-20 selloff, Raffles Medical founder and chairman Dr. Loo has bought 5.3m shares averaging SGD0.81/ share.
- See Raffles Medical Share Price; Raffles Medical Target Price; Raffles Medical Analyst Reports; Raffles Medical Dividend History; Raffles Medical Announcements; Raffles Medical Latest News.
- Key risks are if
- medical tourists take longer than expected to return; and
- longer than expected gestation period for China hospitals.
Lai Gene Lih CFA
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-04-29
SGX Stock
Analyst Report
0.99
DOWN
1.060
