Raffles Medical Group - OCBC Investment 2020-07-27: Gradual Return To Pre-COVID-19 Levels


Raffles Medical Group - Gradual Return To Pre-COVID-19 Levels

  • Soft 1H20, as operations were impacted by the Covid-19 outbreak. Management expects a gradual recovery trend and the company to remain profitable for 2H20, barring deterioration of the Covid-19 situation.
  • HOLD rating with fair value of SGD0.96 reflecting a more modest recovery outlook.
  • Following the broad equity markets’ upturn over the past quarter, Raffles Medical's share price has recouped most of its year-to-date losses and outperformed the STI index, recovering +26% from its 23rd March low and underscoring our previous Buy rating.

Raffles Medical's 1H20 results unsurprisingly impacted by the pandemic

  • Raffles Medical (SGX:BSL) reported soft 1H revenues of SGD241.4mn (-5.4% y-o-y) as most elective procedures and non-urgent clinical services were deferred during the pandemic and the group saw suspension of operation for some of its clinics in China during the peak of the outbreak.
  • Raffles Hospital Chongqing experienced much smaller patient load while in Singapore, travel restrictions negatively impacted the inflow of foreign patients seeking medical care. As a result, 1H revenues from hospital services fell 14.5% to SGD126.6mn.
  • The impact was partially mitigated by better healthcare services, which grew 6.8% to SGD124.6mn in 1H, driven by demand for services such as telemedical consultations, air-border screening, swabbing of foreign workers and medical care services for the Singapore government’s Changi Exhibition Centre-Community Care Facility for infected Covid-19 cases.
  • Raffles Medical's 1H EBITDA fell 13.9% on the back of higher expenses on personal protection equipment, purchased services and staff costs to support the pandemic initiatives. Net profit fell -38.2% y-o-y to SGD17.2mn. Excluding its Chinese healthcare division which was more severely impacted by the outbreak (Raffles Hospital Chongqing, China Clinics and Raffles Medical Hong Kong), adjusted profit after tax was SGD31.2mn (i.e. -3.7% y-o-y).

Balance sheet remains resilient with low net gearing ratio of ~1.8% as of end 1H20

  • Interim dividend of 0.5 Scts/share was declared. Raffles Medical’s net debt position increased from S$13.3 million as at 31 December 2019 to S$15.8 million as at 30 June 2020, largely due to increased borrowing for project expenditure incurred for Raffles Hospital Chongqing.

HOLD rating with reduced fair value of SGD0.96 implying 32x forward PER (+1 s.d. to its 10Y historical average multiple).

  • While the group has engaged patients via its digital platform during Covid-19 outbreak and continues to invest and develop its digital platform, a gradual recovery trajectory remains the base case with time will be needed for normalcy to return and the expansion plans in China to play out.
  • The commencement date of operations for Raffles Hospital Shanghai continues to hinge on Shanghai’s pace of normalization, although opening preparations are underway.

Share price has out-performed the STI index year to date, underscoring our prior Buy rating.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-07-27
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.96 DOWN 1.020