RAFFLES MEDICAL GROUP LTD (SGX:BSL)
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
- We cut our Raffles Medical's FY20-22F EPS by 6.6-13.4% to reflect the ongoing headwinds facing medical tourism and delay in the Shanghai hospital’s opening (most likely FY21F). We think the improving local patient volume has been priced in, but with limited visibility on the return of foreign patients, we downgrade the stock from Add to HOLD with a lower SOP-based target price of S$0.96.
- See Raffles Medical Share Price; Raffles Medical Target Price; Raffles Medical Analyst Reports; Raffles Medical Dividend History; Raffles Medical Announcements; Raffles Medical Latest News.
- Downside risks include virus resurgence and poor overseas execution. Faster lifting of travel restrictions and return of patient volumes are upside risks.
- The group continues to generate positive operating cashflow and FCF, and has a strong balance sheet with 1.8% net gearing at end-1H20. Raffles Medical currently trades at c.31x forward P/E (slightly above its long-term mean) and offers c.3% dividend yield.
NGOH Yi Sin
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-07-27
SGX Stock
Analyst Report
0.96
DOWN
0.980
