Raffles Medical Group - Maybank Research 2022-09-23: In The Pink Of Heath; Our Top Pick In The Sector


Raffles Medical Group - In The Pink Of Heath; Our Top Pick In The Sector

  • Raffles Medical's share price has rallied 19% since the positive 1H22 earnings surprise, largely driven by its healthcare division. The outperformance was due to several factors:
    1. increased outpatient volumes and general practitioner (GP) services;
    2. continued operation of the Changi Testing Facility (CTF) (until at least end-2022); and
    3. strong operational leverage from reduced costs and more efficient staffing (less PCR tests).

Group practice model is more cost effective

  • Historically, ~30% of Raffles Medical (SGX:BSL)’s hospital patients are foreigners, mostly nationals from regional countries. It offers health tourism packages and international patient services to take care of their needs.
  • Notably, the hospital Group Practice Model of collaborative care also allows its medical specialists to offer team-based care, which is especially important for patients who have multiple medical conditions and require the care of more than one doctor. As a team, specialists diagnose and treat patients efficiently. As such, costs are kept low by not repeating consultations or examinations unnecessarily.

Healthcare segment should continue to do well

  • Raffles Medical has over 7,000 corporate clients and management continues to focus on pursuing growth in this segment. Its clinic network is also part of the government’s PHPC scheme. In line with MOH’s Protocol 1, low-risk individuals with mild symptoms are advised to see a doctor instead of going to the A&E. The recent easing of indoor mask requirement along with resumption of social and mass gatherings has also made it easier for common illness to spread, especially as COVID-19 has not gone away. We thus remain cautiously optimistic of Raffles Medical’s 2H22 performance.

China reopening may provide the next catalyst

  • Raffles Medical has been operating in China since 2010 and provides healthcare in 8 cities, including Hong Kong. This is more than half of its current total of 14 cities across Asia. This year, Raffles Medical will open an in-vitro fertilization/assisted reproductive therapy centre in Hainan. According to Vincent Chia, MD of Raffles China Healthcare, it plans to increase the number of cities to 20 in the next 3-5 years.
  • Despite experiencing sporadic COVID lockdowns in China, we expect its Shanghai and Chongqing hospitals to see gradual recovery in patients load from next year onwards.
  • We retain BUY recommendation on Raffles Medical with unchanged DCF-based target price.
  • Raffles Medical remains our preferred pick in the healthcare sector.

Eric Ong Maybank Research | https://www.maybank-ke.com.sg/ 2022-09-23
SGX Stock Analyst Report BUY MAINTAIN BUY 1.570 SAME 1.570