Raffles Medical Group - RHB Invest 2020-07-28: Waiting For a Vaccine; Still NEUTRAL


Raffles Medical Group - Waiting For a Vaccine; Still NEUTRAL

  • Raffles Medical (SGX:BSL)’s 1H20 results are in line. 1H20 PATMI plunged 38% y-o-y to SGD17.2m on a 5% y-o-y decline in revenue, increase in lower-margin services, and operational deleverage.
  • While the group has seen a resumption in the local patient load in June and July, we do not expect its foreign patient load to recover to pre-COVID levels in the near term, based on the current pandemic situation. As a result, we cut Raffles Medical's FY20-22F earnings by 13%, 13%, and 6%. This lowers our DCF-derived Target Price to SGD0.91.

Raffles Medical's 1H20 results infected by COVID-19.

  • Raffles Medical's revenue from the hospital services fell 15% y-o-y, as the COVID-19 pandemic put a halt to foreign patients entering Singapore to seek treatment, while locals also deferred elective procedures. The 2-month circuit breaker in Singapore further ceased non-urgent consultation and affected 2Q20 revenue.
  • In China, Raffles Medical's Chongqing hospital (RHCQ) also saw significantly lower patient loads, due to extensive lockdown and movement restrictions during 1Q20.

Some treatments.

  • The decline in hospital services was partially offset by an increase in subsidised patients under the Emergency Care Collaboration (ECC) with the Ministry of Health, although this yielded lower margins.
  • Raffles Medical also actively sought more COVID-19-related projects – like swabbing foreign workers, temperature screening, and implemented telemedicine – during this period to mitigate the decline from hospital services. As a result, revenue from its healthcare services was boosted by 7% y-o-y and brought the overall decline in revenue to 5% y-o-y.

Raffles Medical's 1H20 PATMI plunged 38% y-o-y to SGD17.2m.

  • We note that the drop would have been sharper (-93% y-o-y) if not for the government grant amounting to SGD15.2m. As the hospital services segment generated higher margins than healthcare services, the sharp decline in its hospital services revenue led to major operational deleverage.
  • In addition, Raffles Medical incurred higher expenditure on contracted services and personal protective equipment to support COVID-19-related projects. Depreciation and finance cost also increased due to the progressive opening of RHCQ.

A bumpy route to recovery.

Juliana Cai CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-07-28
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.91 DOWN 0.960