RAFFLES MEDICAL GROUP LTD (SGX:BSL)
Raffles Medical Group - 9 New Reasons To Increase PCR Swab Testing
- Raffles Medical has been a beneficiary of the ongoing COVID-19 situation in Singapore. In-patient volumes have already exceeded pre-COVID-19 levels due to high domestic patient load. With nine new VTLs, Raffles Medical stands to benefit from its exclusive contract with Changi Airport Group for on-arrival PCR testing.
- Operations in China are ramping up and are expected to break even in the coming years.
- Maintain BUY rating on Raffles Medical with a slightly higher target price.
PCR swab testing demand to continue.
- With the increasing number of COVID-19 cases in Singapore, demand for PCR swab testing is set to stay. Raffles Medical (SGX:BSL)'s overall PCR swab testing volumes have increased but margins have started to soften due to the introduction and rising adoption of Antigen Rapid Tests (ART). However, PCR swab test is still considered the gold standard for determining infection and is still required for patients with respiratory symptoms, helping to sustain demand as COVID-19 cases surge in Singapore.
Unfazed by any increase in testing volumes.
- Singapore’s government has recently announced the opening up of nine additional vaccinated travel lanes (VTL), allowing quarantine-free travel to countries such as the United Kingdom and the United States. Raffles Medical, having an exclusive contract to perform PCR testing on all inbound passengers, is set to benefit from a surge in demand for PCR testing.
- Management has noted that Raffles Medical has the available capacity to take on the expected additional testing volume from the VTLs, given space to host the testing facilities. However, the government has also removed the need for PCR routine testing on the 3rd and 7th day post-arrival.
- Management has noted that VTL passengers leaving Singapore after their stay tend to return to Raffles Medical for their pre-departure PCR test. This provides some customer stickiness and additional PCR swab testing revenue moving forward.
Chinese hospitals set for inflection point in 2024.
- Raffles Medical’s China hospitals are on track to exit higher billing intensity.
Outperforming domestic operations.
- Raffles Medical’s role in the Emergency Care Collaboration Scheme (ECC) has allowed the group to growth moving forward.
Decommissioning of vaccination centres.
- Since our previous update, three of Raffles Medical’s 17 COVID-19 vaccination centres were closed demand.
Raffles Medical Group - Earnings revision & Valuation
- We adjust our 2021F-22F earnings forecast for Raffles Medical upwards (previously: S$1.43) (WACC of 6.1% and terminal growth of 3.0%). We have increased our terminal of Singapore’s borders. Currently, Raffles Medical still trades below peers’ average P/E of 40x 2021F, as well as below its 5-year mean EV/EBITDA of 21x.
- See
- Catalyst:
- M&As.
- Better-than-expected ramp-up of new hospitals in China.
- Recovery in foreign patient load.
Llelleythan Tan Yi Rong
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-10-12
SGX Stock
Analyst Report
1.66
UP
1.430
