Raffles Medical Group - DBS Research 2021-07-27: Press On With Tests And Vaccination

RAFFLES MEDICAL GROUP LTD (SGX:BSL)

Raffles Medical Group - Press On With Tests And Vaccination

Raffles Medical's strong 1H21 results with contributions from COVID-19 services and recovery getting closer to pre-COVID levels, above our estimates.
Healthcare services is 77% above pre-COVID, while hospital services is 16% below.
Expanded COVID-19-related services and treatment of severely ill foreign patients will lead recovery.
Maintain BUY on Raffles Medical; raised target price to S$1.48.

Raffles Medical (SGX:BSL)’s 1H21 PAT grew 129% y-o-y to S$39m, above our estimates, mainly due to a low base in 1H20 and contributions from COVID-19- related services, partially offset by lower government grants such as the Job Support Scheme (JSS) and property tax rebate. Excluding estimated government grants, EBITDA is estimated to be ~S$69m (-1% h-o-h).
Revenue grew 42% y-o-y to S$344m mainly from growth in both healthcare services (+65.4% y-o-y) and hospitals services (+35.4% y-o-y).
More importantly, we note that healthcare services is 77% above pre-COVID (1H19 revenue), while hospital services is still 16% below pre-COVID due to fewer incoming foreign patients, except those who are severely sick.
Similar trends observed, Raffles Medical's 1H21 EBTIDA +78% y-o-y to S$74.5m, 53% above pre-COVID level (1H19 EBITDA). 1H21 EBITDA margins at 22%, slightly higher compared to 1H19 possibly due to higher margins from COVID-19-related services.
Raffles Medical's 1H20 revenue from Singapore and Greater China grew 43% y-o-y and 58% y-o-y, respectively, while the rest of Asia fell 13% y-o-y.
As previously announced, Raffles Medical will combine its interim and final dividend into a single dividend with a dividend policy of a 50% payout. The special dividend will still be considered when necessary. However, during the transition year of FY21, Raffles Medical has committed to at least 2.5 cents of dividend per share (a ~2% yield).

In Singapore, Raffles Medical continues to support the government’s COVID-19 initiatives. It has expanded its operations to include 17 vaccination centres, pre-departure swabbing of cruise passengers, and PCR test centres to conduct tests for new clusters as they emerge. Foreign patients have yet to return in a big way due to travel restrictions, except those who are severely ill.
In China, while there are sporadic occurrences of new clusters in China, the situation has been largely under control and operations in China have returned to normal with improving patient loads.
We understand that RafflesHospitalChongqing EBITDA losses are on track with management’s guidance of S$5m to S$6m in year three of operations. We guesstimate EBITDA losses in 1H21 at S$2.5m to S$3m.
RafflesHospitalShanghai will be opening today, 26 July 2021. No change in gestation period guidance of 3 years to EBITDA breakeven.
The two hospitals (Chongqing and Beijing) and Raffles Medical clinics in China have also stepped up and participated in the local government’s COVID-19 vaccination efforts.

We maintain our BUY rating on Raffles Medical but raise our target price to S$1.48 from the previous S$1.40. Given the strong 1H21 results and occurrences of new clusters in Singapore, we raised our FY21F-FY22F earnings by 5% to 8%.
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We continue to believe that the key catalysts will be led by expanded COVID-19-related services and the reopening of travel borders, which could drive earnings growth, surpassing pre-COVID earnings levels and offsetting gestation losses from new hospitals in China in the next two years.

Rachel Lih Rui TAN DBS Group Research | https://www.dbsvickers.com/ 2021-07-27

SGX Stock Analyst Report BUY UPGRADE HOLD 1.48 UP 0.950