Raffles Medical Group - Phillip Securities 2022-02-23: Downtime Ahead


Raffles Medical Group - Downtime Ahead

  • Raffles Medical (SGX:BSL)'s FY21 revenue/PATMI beat our estimates at 104%/111% of our forecast. Earnings beat from higher-than-expected COVID-19-related services and government grants.
  • Raffles Medical's FY21 dividend of S$0.028 is a 12% improvement from a year ago.
  • We expect FY22e to be a weaker year for Raffles Medical. COVID-19-related services are expected to decline, full-year losses from RafflesHospitalShanghai and a slower recovery in foreign patients. Foreign patient volume may be softer than pre-pandemic levels due to regional competition and substitution with local healthcare.

The Positives

Pandemic services driving growth.

  • Raffles Medical's 2H21 revenue jumped 54% y-o-y. Driving growth were COVID-19-related services such as vaccinations, PCR swab tests and management of community treatment facilities. Contribution from COVID-19 services was not disclosed. However, peer hospitals' contribution from COVID-19-related services is around 20%. Another revenue driver was China, up 33%, but contribution was only 7% of 2H21 revenue.

Record cash flows.

  • Free cash flow generated during the year was a record S$110mil (FY20: +S$74.3mil). Raffles Medical's net cash improved to S$91mil from S$32mil a year ago. A dividend of S$0.028 is a 60% payout ratio or S$50mil cash outlay.

The Negative

Rising staff cost.

  • Staff cost jumped 32% y-o-y in 2H21 to S$204mil. Staff cost as a percentage of sales in FY21 is around 53.5%. This compares with the pre-pandemic level of 51%. We expect staff costs to remain elevated due to labour shortage and tougher operating conditions.
  • Other cost pressures are from personal protective equipment (such as masks, gowns, etc). The impact of rising electricity costs is less significant. There is a need to raise prices by 3-5% to offset some of these higher costs.


  • We expect Raffles Medical's earnings to be weaker in FY22e:
    1. COVID-19-related services will decline from reduced PCR swab tests and fewer vaccination programmes;
    2. Recovery in foreign patient volumes will be slower despite borders re-opening. Foreign patients have diverted to neighbouring countries such as Malaysia and Thailand, where prices are more competitive. Foreign patients are also converting to their local healthcare facilities.
    3. We expect losses in China to widen further from an estimated EBITDA loss of S$12mil in FY21 to S$18mil in FY22e. Full-year operations of RafflesHospitalShanghai is the main cause for the widening losses. Since its July 2021 opening, the hospital has operated only at a limited scale, as it is dependent on licensing and arrival of equipment.

Maintain NEUTRAL on Raffles Medical with a lower target price of S$1.27, from S$1.35

Phillip Research Team Phillip Securities Research | https://www.stocksbnb.com/ 2022-02-23
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.27 DOWN 1.350