Raffles Medical Group - OCBC Investment 2021-02-23: More Upbeat On Recovery Path


Raffles Medical Group - More Upbeat On Recovery Path

  • Raffles Medical's FY20 PATMI grew 9.3% from a year ago to S$65.9mn, which was ahead of market expectations. Final dividend of S$0.02 per share was recommended.
  • Management expects to remain profitable in FY21, and plans to consolidate dividends into an annual payout with FY21E dividends guided to be not less than FY20 total dividend of 2.5 cents/share.
  • Fair value of Raffles Medical is raised to S$1.15 on the back of a more constructive outlook ahead.

Raffles Medical's FY20 results were better than expected

  • FY20 results were better than expected, helped by Raffles Medical (SGX:BSL)’s continued efforts to create revenue streams from new services which included support for pandemic management efforts.
  • Raffles Medical's FY20 revenue of S$568.2mn grew 8.8% from a year ago, with revenue from healthcare and hospital services divisions growing by 17.8% and 2.1% respectively. Revenues breakdown by geography was as follows:
    • Singapore 91.1% (grew +12% y-o-y, contribution up from 88% in 2019),
    • Greater China 6%,
    • rest of Asia 2.8%.
  • Group EBITDA gained 17.6% y-o-y to S$123.9mn.
  • Raffles Medical's FY20 PATMI grew 9.3% from a year ago to S$65.9mn, which came in ahead of consensus market expectations as the group saw a better 2H recovery on the back of timely government support during the pandemic in 1H20 and new services started (e.g. COVID-19 Polymerase Chain Reaction/PCR and serology testing), which supported national pandemic control measures (new activities the company participated in include air border screening, swabbing of foreign workers/arriving air travellers, medical care given at community isolation facilities, which led to the hire of more than 1300 part time staff during the year).

Final dividend of S$0.02 per share was proposed

  • Final dividend of S$0.02 per share was proposed, which brings Raffles Medical's total dividend for FY20 to S$0.025 per share (~70% payout ratio, stable dividend from FY19).
  • With effect from FY21, Raffles Medical plans to consolidate its dividends into an annual core dividend of up to half of its average sustainable PATMI, balancing against capital requirements to fund its expansion plans.
  • For FY21E dividends, management expects to pay not less than FY20 total dividend of S$0.025 per share (inclusive of total core and special). No scrip dividend option was offered by Raffles Medical this year.

Balance sheet remained solid with low net gearing of 0.2% (as of end Dec 2020)

  • Raffles Medical's cash and equivalents grew by 34% to S$202.1mn (vs S$150.7mn a year ago) after funding the China growth through internally generated cash and borrowings and distribution of dividend of about S$19.2mn.

Fair value is raised to S$1.15

  • Fair value estimate for Raffles Medical is raised to S$1.15 (DCF estimates, implying 30.7x FY21E PER) on the back of a more constructive outlook ahead, with more meaningful recovery prospects expected ahead as vaccine rollout in the region progresses and travel restrictions are eased over time.
  • At this point, traffic from local patients are returning to normal although foreign patients into Singapore continue to face travel restrictions, which should remain until vaccinations gather momentum (~end 3Q 2021). Pandemic related activities in Singapore however has contributed positively and mitigated the decline in foreign patients earnings. This should continue for most of this year (potentially until September), as the group is also supporting the government’s vaccination initiatives with four dedicated vaccination centres to date in Singapore.
  • In terms of its China expansion,
    • Raffles Shanghai is currently undergoing opening preparations to receive patients in 2Q 2021. Staffing is being managed carefully in tandem with the expected opening of the hospital, so as to ensure costs remain under control.
    • Operations of Raffles Hospital Chongqing has seen improvement in patient loads, and is expected to reach EBITDA breakeven by 2022.

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OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-02-23
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