RAFFLES MEDICAL GROUP LTD (SGX:BSL)
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.
Outlook
- We expect Raffles Medical's earnings to be weaker in FY22e:
- COVID-19-related services will decline from reduced PCR swab tests and fewer vaccination programmes;
- 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.
- 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
- Our FY22e earnings forecast for Raffles Medical are cut by 8% and our DCF valuation WACC is nudged up from 6.8% to 7.1% due to a higher risk-free rate assumption.
- Our DCF target price for Raffles Medical is lowered from S$1.35 to S$1.27. We raised our discount rate from higher risk-free assumptions and cut FY22e earnings by 8%. Our NEUTRAL recommendation for Raffles Medical is maintained. There will be some downtime in earnings until volume from foreign patients recovers and hospitals in China achieve scale and profitability.
- See
Phillip Research Team
Phillip Securities Research
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https://www.stocksbnb.com/
2022-02-23
SGX Stock
Analyst Report
1.27
DOWN
1.350
