Raffles Medical Group - CGS-CIMB Research 2021-05-28: Key COVID-19 Tester In Changi Airport; Upgrade To ADD


Raffles Medical Group - Key COVID-19 Tester In Changi Airport; Upgrade To ADD

  • We like Raffles Medical’s position as one of the key private players in supporting nationwide COVID-19 testing, especially as Changi Airport’s dominant tester.
  • Raffles Medical could see its COVID-19 testing activities grow to at least 6k tests per day as Singapore ramps up average PCR tests to 89k/daily in May 21.
  • We lift our Raffles Medical's FY21-23F earnings per share forecast by 12.1-15.9% as we impute higher testing revenue and upgrade Raffles Medical to ADD with a higher SOP-based target price of S$1.22.

Upgrade Raffles Medical from Hold to ADD with a higher SOP-based target price.

  • As Singapore ramps up PCR testing to 89k tests daily, we forecast Raffles Medical Group (SGX:BSL)’s daily testing to reach ~6k/day in FY21-23F and lift our FY21-23F EPS by 12.1-15.9%. This takes our SOP-based target price to S$1.22 (from S$1.10 previously).
  • We like Raffles Medical’s position in Changi Airport as a key COVID-19 test provider for inbound travelers which could provide further earnings upside for more testing once borders reopen. At 14.7x FY22F EV/EBITDA, Raffles Medical trades below its 5-year average of 19.7x and at a 21% discount to regional hospitals.

Recap on contribution from fight against COVID-19 in FY20

  • Raffles Medical’s 1H20 revenues fell 7% y-o-y as local patients deferred elective surgeries and medical tourism fell. However, the trend reversed in 2H20 with revenue growth of 23% y-o-y, mainly due to provision of COVID-19-related services. We estimate Raffles Medical’s COVID-19 related services amounted to ~S$83m in FY20, with the bulk (estimated S$60m) likely attributable to COVID-19 testing, with the remainder from facilities management revenues for community care facilities, air border temperature screening and workers dormitories.

3x growth in testing in FY21-23F, accelerated vaccines help slightly

  • We understand Raffles Medical administered ~600k COVID-19 tests in FY20, out of the estimated 2.5m tests in Singapore in FY20. Given overall Singapore testing has grown at least threefold, we forecast Raffles Medical could see average daily COVID-19 testing numbers reach ~6k/day in FY21F. This lifts FY21-23F revenues by 8-10% and net profit by 10.2-12.7%.
  • The accelerated vaccination programme in Singapore to reach 4.7m people by Aug 21 could also see slight incremental revenue for Raffles Medical as it operates 12 of 37 vaccination centres as well as offers vaccination services at two of its clinics.

Raffles Medical vs Q&M Dental Group - Same same, but different

  • Like Q&M Dental Group (SGX:QC7), Raffles Medical should benefit from more testing as both operate licensed laboratories for PCR testing. However, Raffles Medical could see lower margins as it does not manufacture its own test kits, but could make up for it by providing other healthcare services such as managing and operating community care facilities and vaccination centres.
  • Similarity:
  • Differences:
    • Raffles Medical procures its test kit supplies externally unlike Q&M Dental Group which manufactures its own test kits through its subsidiary Acumen Diagnostics.
    • We believe test kit supplies could be provided by the government, with news reports of Changi Airport laboratories employing the use of test kits jointly developed by government-linked entities DSO National Laboratories and the Agency for Science, Technology and Research.
    • Potentially lower margins from the testing business for Raffles Medical, which we have assumed to be at 20% compared to Q&M Dental Group’s 30%.
    • Raffles Medical also manages and operates community care facilities, which Q&M Dental Group is not as actively involved in.
    • Steadier supply of tests for Raffles Medical. Since the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003, Raffles Medical had been contracted to conduct air border temperature screening services when required. With COVID-19 in 2020, services have extended to include swab tests for visitor arrivals.
  • See also report: Q&M Dental Group - CGS-CIMB Research 2021-05-18: Officially Levelled Up.

Upgrade Raffles Medical to ADD with a revised SOP-based target price of S$1.22

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-28
SGX Stock Analyst Report ADD UPGRADE HOLD 1.22 UP 1.100