Raffles Medical Group - CGS-CIMB Research 2020-07-27: Grant Not Enough To Offset China Drag


Raffles Medical Group - Grant Not Enough To Offset China Drag

  • Raffles Medical's 1HFY20 PATMI fell 38.2% y-o-y mainly due to wider China losses and partially offset by S$15.2m of JSS, wage credit and property tax rebate.
  • We expect gradual earnings improvement in subsequent quarters as local patient loads have recovered to pre-virus level and 4Q is seasonally strong.
  • Downgrade from Add to HOLD on limited upside.
  • Upside risk: faster lifting of travel restrictions; downside risks: virus resurgence and overseas execution.

Raffles Medical's 1HFY20 PATMI below expectations on higher opex

  • Raffles Medical (SGX:BSL) reported 1HFY20 PATMI of S$17.2m, which fell 38.2% y-o-y on the back of weaker topline (-5.4% y-o-y) and higher operating expenses from Covid-19 initiatives (higher staff costs, more outsourced services and personal protection equipment).
  • China healthcare division was the key contributor to the net profit decline with S$14m-15m net loss in 1H20 due to mandatory closure of clinics and non-essential services; excluding this, the group’s net profit would have been largely unchanged at S$31.2m (1H19: S$32.3m).
  • Thanks to the job support scheme (JSS), wage credit and property tax rebate amounting to S$15.2m, we saw q-o-q improvement in 2Q net profit to S$9.7m (1Q: S$7.5m) even when its Singapore operations were more badly affected by the circuit breaker.
  • 1H20 was a miss at 33% of our/consensus full-year forecasts.
  • Interim DPS of 0.5 Scts was unchanged y-o-y.

Lower-margin healthcare services mitigate hospital revenue decline

  • As most elective surgeries were deferred and foreign patients were prohibited from seeking overseas medical treatment since the Covid-19 outbreak, Raffles Medical saw its hospital services revenue drop 14.5% y-o-y in 1H20. Revenue from its healthcare services segment increased 6.8% y-o-y to S$124.6m due to more telemedicine cases, air-border screening, swabbing of foreign workers and provision of medical care at the government’s Changi Exhibition Centre-Community Care Facility (CEC-CCF).
  • Raffles Medical has also extended its emergency care collaboration agreement with the Ministry of Health (MOH), and obtained the licence for Covid-19 testing. Coupled with gradual recovery of domestic patient volume in its key markets, we expect a sequential improvement in Raffles Medical’s 2H20 net profit.

Downgrade to HOLD with lower EPS and Target Price of S$0.96

NGOH Yi Sin CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-27
SGX Stock Analyst Report HOLD DOWNGRADE ADD 0.96 DOWN 0.980