Singapore Healthcare Stocks - Maybank Kim Eng 2021-10-13: Another Shot In The Arm

RAFFLES MEDICAL GROUP LTD (SGX:BSL) THOMSON MEDICAL GROUP LIMITED (SGX:A50) Q & M DENTAL GROUP (S) LIMITED (SGX:QC7)

Singapore Healthcare Stocks - Another Shot In The Arm

Singapore and Malaysia have each revealed plans to start reopening their borders, as vaccination rates have reached 85%/66% respectively. The transition from zero-COVID strategy towards “living with COVID-19” provides several angles that Raffles Medical can benefit from, while strong dental business continues to sustain Q&M Dental’s prospects.

We raise Raffles Medical’s DCF target price to S$1.68 (WACC: 8.03%, LTG: 3%) as we increase FY21-23E EPS by 2-8%, among other tweaks to the model. Maintain BUYs on Raffles Medical and Q&M Dental.

In our view, Raffles Medical (SGX:BSL) is a net beneficiary of Singapore’s continued reopening stance.
- First, as the sole provider of PCR tests for vaccine travel lanes (VTL) currently, Raffles Medical benefits from the nine additional VTLs (total: 11).
- Second, the government is already rolling out vaccination booster shots, which may imply more resilient vaccination revenue than we originally expected.
- Third, as the public healthcare system is currently stressed, we believe Raffles Medical’s emergency care collaboration (ECC) with the government will continue to be relevant to help manage capacity at public hospitals.
Foreign patients remain slow to recover, but we believe is an upside driver when tourists from more countries (e.g. Indonesia) are able to travel to Singapore more freely.

As Singapore extends its quarantine-free travel to more countries, MOH announced on 9 Oct 2021 that COVID-19 testing protocols have been streamlined to rely more on antigen rapid test (ART), which typically produces results in less than 20 minutes. PCR testing capacity is to be reserved mainly for people who are unwell and symptomatic COVID-19 patients, as well as VTL travellers.
We are leaving our target price and EPS estimates for Q&M Dental (SGX:QC7) intact for now due to its robust core dental business (with foreign patients account for < 5%), while the rising COVID-19 cases should still support its testing revenue in the near term.
On 12 Oct-21, Q&M Dental bought 1.4mil shares in the open market at S$0.555-0.56 following a recent sell-off. See SGX listed companies' latest share buybacks.

Thomson Medical (SGX:A50), which derives ~75% of revenue from Singapore and the balance from Malaysia, believes that easing of restrictions should aid in higher patient load in key services like obstetrics, gynaecology and paediatrics.
In Malaysia, construction of its 400-bed new wing at Thomson Hospital Kota Damansara is completed and should commence operations in 4Q21. It also owns the proposed Thomson Iskandar Medical Hub, in Johor Bahru.

For the sector, downside risks include:
1. overestimation of China growth for Raffles Medical, and/or the resilience of COVID-19 related revenue;
2. keen competition for Q&M Dental dental business and weaker-than-expected testing revenue.
See the peer comparison of Singapore listed healthcare stocks including Raffles Medical (SGX:BSL), Q&M Dental (SGX:QC7), Thomson Medical (SGX:A50), Singapore Medical Group (SGX:5OT), IHH Healthcare (SGX:Q0F) with APAC peers in report attached below.

Lai Gene Lih CFA Maybank Kim Eng Research | Eric Ong Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2021-10-13

SGX Stock Analyst Report BUY MAINTAIN BUY 1.680 UP 1.580

NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000

BUY MAINTAIN BUY 0.850 SAME 0.850