Raffles Medical Group - Phillip Securities 2021-07-29: Navigating Pandemic Well

RAFFLES MEDICAL GROUP LTD (SGX:BSL)

Raffles Medical Group - Navigating Pandemic Well

Raffles Medical (SGX:BSL)'s 1H21 PATMI jumped 128% y-o-y to S$39.4mn. Earnings a large beat at 73% of our FY21 estimate.
COVID-19 services such as vaccination and PCR swab testing fuelled growth.
400-bed RafflesHospitalShanghai started operations this month. EBITDA losses for both China hospitals, including RafflesHospitalChongqing, estimated at S$10mn this year.

Raffles Medical navigated the pandemic with a huge recuperation in earnings. Despite a loss of foreign patients, Raffles Medical managed to pivot to pandemic-related healthcare services. Our DCF target price (WACC 6.8%) for Raffles Medical is raised from S$1.18 to S$1.35 as we lift FY21e earnings by 41%. Nevertheless, downgrade Raffles Medical from ACCUMULATE to NEUTRAL as the move into the endemic stage of COVID-19 lacks visibility. The transition from pandemic-related services to foreign patients is unclear as borders may remain shut longer than expected.

Raffles Medical's revenue jumped 42% y-o-y in 1H21. Two sources of growth were COVID-19 vaccinations and PCR swab tests. Raffles Medical operates 17 of Singapore’s 40 vaccination centres. Revenue from foreign patients was limited except for emergency cases. Still, Raffles Medical has maintained contact with its foreign patients via telemedicine and may provide their opinions on patient condition.

Raffles Medical's operating cash flows catapulted from S$35mn in 1H20 to S$83mn in 1H21. However, capex also increased by S$13mn to S$40mn and dividends, to S$37mn in the absence of scrip dividends.

No interim dividend will be paid by Raffles Medical this financial year. But it has guided an annual dividend of half its average sustainable PATMI. Dividend for FY21e is expected to be not less than 2.5 cents. Our estimate is S$0.03 per share.

We expect earnings momentum to continue into 2H21. COVID-19 vaccinations will be key. As at 30 June, vaccine doses for the entire country totalled 5.4mn. Assuming an 80% vaccination target or 9.1mn doses, the country has only administered 60% of this target. The remaining 40% can be completed this year. After this wave of vaccination, opportunities lie in booster shots, though the scale is expected to be much smaller.
The next area of growth will be PCR swab testing. Singapore has been ramping up PCR swab tests. That said, if COVID-19 is declared endemic, demand for PCR swabs could be lower. Swab tests may only be secondary to the faster and cheaper antigen or PCR breathalyser test, if this returns a positive result.
Raffles Medical has made huge strides in expanding outside Singapore. Its two hospitals in China are intended to lay the foundation for multiple-year growth. Raffles Medical aims to tap insatiable demand for healthcare services in a wealthier and ageing China.
Near term, however, both hospitals will be a drag on earnings, as they undergo gestation to build scale. EBITDA losses for both are estimated at S$10mn this year.

We raise FY21e earning forecast for Raffles Medical by 41% to S$75.7mn. In our DCF valuation, Raffles Medical’s terminal growth rate has also been nudged up from 3% to 4% on account of higher growth expectations as its new hospital in Shanghai is completed.
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Phillip Research Team Phillip Securities Research | https://www.stocksbnb.com/ 2021-07-29

SGX Stock Analyst Report NEUTRAL DOWNGRADE ACCUMULATE 1.35 UP 1.180