Raffles Medical Group - CGS-CIMB Research 2021-02-22: FY20 In-line; Awaiting Foreign Patients

RAFFLES MEDICAL GROUP LTD (SGX:BSL)

Raffles Medical Group - FY20 In-line; Awaiting Foreign Patients

Raffles Medical's FY20 core net profit of S$42.3m (ex govt grants and some fair value losses) was largely in line with our/consensus’ earnings of S$44.2m/S$42.6m.
While we expect an earnings improvement in FY21F, it could be lower vs FY19’s number on lack of foreign tourists and potential Shanghai losses.
Reiterate HOLD, as we think the improving local patient volume has been priced in. We lift our SOP-based target price as we roll forward to end-FY21F.

Raffles Medical (SGX:BSL)'s FY20 revenue of S$568.2m (+8.8% y-o-y) was a positive surprise, beating our forecast (S$500m) on healthcare services revenue growth of 18.4% y-o-y, likely due to COVID-19 related works.
Stringent cost controls in FY20 cushioned the y-o-y core EBIT decline (-12% y-o-y); however, higher-than expected tax expenses (+28% y-o-y) and impairments to China goodwill (S$3.5m) led to a lower core net profit of S$42.3m (ex government grant of S$28m and investment property fair value loss of S$4.5m).
Final dividend of S$0.02 took Raffles Medical's FY20 dividend to S$0.025 per share, within our expectations.

Raffles Medical guided that Singapore local patient loads returned back to pre-pandemic levels in 2H20, and it seeks to continue supporting the government’s COVID-19 efforts. It is actively involved in Singapore’s national vaccination drive.
In China,
1. the Chongqing hospital, albeit still yielding EBITDA losses (below S$10m), saw higher patient loads vs FY19;
2. the Beijing clinic has been upgraded to Raffles Hospital Beijing; and
3. Raffles Hospital Shanghai is targeted to receive patients by 2Q21F.
Raffles Medical looks to consolidate its dividends into a single annual payment of at least up to 50% of its average sustainable PATMI (with potential for special dividend, when appropriate). For FY21F, barring unforeseen circumstances, Raffles Medical said it expects to cumulatively pay not less than S$0.025 per share (slightly below our S$0.028 per share forecast, but we keep it intact for now).It will also discontinue the Scrip Dividend option in FY21F.

We lift Raffles Medical's FY21-22F revenues forecast to account for continued COVID-19 work but increase tax expenses; this results in a slight uplift to our net profit forecasts. However, we also adjust our earnings per share forecast to incorporate higher shares outstanding post scrip dividend and employee options. We introduce our FY23F numbers which represent an earnings per share growth of 4.4% y-o-y for Raffles Medical.

This report marks a change in covering analyst. We think improving local patient volumes have been priced in. Together with limited visibility of the return of foreign patients and potential start-up losses of the Shanghai hospital, we stay conservative and reiterate our HOLD call.
See Raffles Medical Share Price; Raffles Medical Target Price; Raffles Medical Analyst Reports; Raffles Medical Dividend History; Raffles Medical Announcements; Raffles Medical Latest News.
We lift our SOP-based target price to S$1.10 as we roll forward our valuation to end-FY21F.
Faster uplift to travel restrictions and better Shanghai earnings are upside risks.
Downside risks: resurgence in new COVID-19 cases and poor overseas execution.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-22

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.10 UP 0.960