Raffles Medical Group - UOB Kay Hian 2020-12-11: Taking A Health Check & A Vaccine

RAFFLES MEDICAL GROUP LTD (SGX:BSL)

Raffles Medical Group - Taking A Health Check & A Vaccine

We expect Raffles Medical Group’s local patient load to reach normalised levels that are on a par with pre-COVID-19 admissions. COVID-19 tests and vaccine administration would provide marginal support if private GP clinics are utilised for such purposes.
Raffles Medical Group is also preparing to complete the launch of the Shanghai hospital in the months ahead.
Maintain BUY with an unchanged DCF-based target price, as a laggard on the recovery theme.

Medical services have largely seen a recovery in 2H20, with private hospital admissions in Singapore down by only 9% y-o-y in Oct 20. We opine that demand for domestic medical services have largely normalised whereas the remaining portion of demand could be made up of medical tourists, which is still lacking.
Taking a look at the China side, we note that the private hospital bed utilisation rate in Chongqing has grown y-o-y in recent months.

With the expectations of a re-opening of travel borders, COVID-19 polymerase chain reaction tests have been made available for travellers at the Raffles Medical Group (SGX:BSL) network of clinics, which could be increasingly utilised as air travel returns. Looking forward to local vaccine administration, general practitioner (GP) clinics will likely be utilised, similar to the model of administration in the UK.

Raffles Medical Group is also planning to complete its Shanghai Hospital in the near term (expecting 4Q20), though we opine that a launch could take place post-Chinese New Year in 2021.
Similar to the Chongqing hospital, we would likely see a phased opening where services pertaining to dental needs and health screenings might be offered initially. Raffles Medical Group could also utilise its specialists in China to assist with the initial opening of the hospital, which could help contain costs.

The uptrend in medical services has been encouraging, with the return of local patient load and other medical services such as elective surgeries and health screening services. Demand for medical services is well past the worst seen in 1H20 and we view that demand should be well supported by COVID-19 measures - including testing and vaccine administration.
Current flu vaccinations, including consultations, have a list price of approximately S$80-100 at Raffles Medical Group clinics. We estimate that Raffles Medical Group clinics make up about 2% of the private GP clinics in Singapore. Assuming a COVID-19 vaccination programme in which private GP clinics are included as part of the administration, we see marginal benefits from vaccination volumes of possibly 50,000- 100,000 at Raffles Medical Group clinics, assuming a full population vaccination.

Although the Raffles Medical Group Chongqing hospital has been affected by COVID-19, there has been a gradual pick-up in patient volume. We also note the continual strength in medical expenditure for top-tier hospitals in the region.
According to the Chongqing Municipal Health Commission, the average hospitalisation expense at top-tier hospitals was up 9.4% y-o-y in 3Q20 as the number of discharged patients stabilised (+1.2% y-o-y) in the same period. This might suggest that top-tier hospitals are continuing to see strong medical expenditure without lasting effects from the pandemic, a positive for Raffles Medical Group Chongqing, which is positioned as a premium medical facility.

We expect Raffles Medical Group's earnings to recover by approximately 50-60% h-o-h in 2H20 (from the low base in 1H20), though it could still be down by about 10-15% y-o-y.
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Raffles Medical Group remains well positioned, with a strong balance sheet and longer term benefits of expansion into the China hospitals segment. In our view, local medical services have shown a resilient recovery and news of returning foreign patient load would be a positive for the group.
Potential catalysts to Raffles Medical's share price include:
- faster-than-expected ramp-up of rental income from specialist centre;
- better-than-expected bed utilisation from new hospitals in China; and
- recovery of foreign patient load.

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-12-11

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