Raffles Medical Group - UOB Kay Hian 2020-07-28: 1H20 Below Expectations; Healing In Progress.


Raffles Medical Group - 1H20 Below Expectations; Healing In Progress.

  • Raffles Medical reported 1H20 net profit of S$17.2m down 38% y-o-y, below our expectations. 2H20 will likely see an improvement with the return of local patient load and elective healthcare services post circuit breaker. However, the recovery of foreign patient load remains uncertain, while the Chongqing Hospital could see an extended operating breakeven timeline.
  • The group still exhibits resilience through the provision of COVID-19 medical care services.
  • Maintain BUY with a slightly lower DCF-based target price of S$1.07.

Raffles Medical's 1H20 earnings below expectations.

  • Raffles Medical (SGX:BSL) announced 1H20 earnings of S$17.2m, down 38.2% y-o-y, forming 36%/33% of our/consensus full-year forecasts, below expectations.
  • Interim dividend remained unchanged at 0.5 S cents/share, vs 1H19.
  • There was a slight improvement on a q-o-q basis for the group’s profit after tax in 2Q20 (S$8.8m vs S$7.5m in 1Q20).

China healthcare division and elective healthcare services faced challenges in 1H20, though 2H20 will likely see an improvement.

  • Revenue for the hospital services segment registered a decrease of 14.5% y-o-y to S$126.6m in 1H20, as most elective surgeries were deferred. Excluding the China healthcare division, net profit after tax would have only decreased by 3.7% y-o-y, implying a net loss of approximately S$15m for the China healthcare division in 1H20.
  • The group has gradually seen an improvement in the China healthcare division, as hospitals and clinics in China have resumed operations with patient load returning to pre-COVID levels.

Some relief from COVID-19 measures.

  • Raffles Medical was propped up by its participation in some of the COVID-19 measures, with it administering swabbing tests for foreign workers, as well as medical care for the government’s Changi Exhibition Centre-Community Care Facility for positive COVID-19 cases. Thanks to its involvement in these measures, the group’s healthcare services segment remained resilient, with revenue growing 6.8% y-o-y.
  • Support from the job support scheme, wage credit and property tax rebate amounted to a sizeable S$15.2m under other income for 1H20.

Seeing the worst in 2Q20.

  • Barring another round of stay-home measures, medical services might have seen the worst effects of COVID-19 in 2Q20, as the circuit breaker measures in Singapore necessitated the closure of certain types of clinical services such as dental treatments, health screenings and other non-urgent consultations.
  • Management noted that since the end of the circuit breaker, local patient load has seen an improvement since mid-June, with the return of elective surgeries.

Still awaiting full recovery, mainly from medical tourists.

  • Foreign patients comprise approximately 20-30% of revenue for the group, which has been curtailed thus far. Foreign patient load would likely see an uncertain and potentially longer recovery period, given its dependence on air travel. The group has taken in additional patient load from public hospitals, though it comes with subsidized treatments and lower margins.

China hospital updates.

  • Management noted that the Chongqing Hospital had taken a hit in 1H20 due to the effects of COVID-19, and could prolong its operating breakeven timeline by a year. Fitting-out works and recruitment are in progress for the Shanghai Hospital, though the actual date of commencement of operations will depend on Shanghai’s return to normalcy.

Raffles Medical Group - Valuation & Recommendation

Trim earnings forecasts by 6.0-8.5% for 2020-22F.

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-07-28
SGX Stock Analyst Report BUY MAINTAIN BUY 1.07 DOWN 1.210