Raffles Medical Group - RHB Invest 2022-08-31: Looking Forward To China’s Growth; Keep BUY


Raffles Medical Group - Looking Forward To China’s Growth; Keep BUY

  • While we remain cognisant of rising costs and believe the current profit margin may not be sustainable, we expect Raffles Medical’s China business to drive long-term earnings growth.
  • In the near term, while COVID-19 related revenue could decline, a normalised healthcare business, higher foreign patient load in Singapore and y-o-y higher revenue from China should enable Raffles Medical to book sequential revenue growth.

With near term growth resumption, Raffles Medical is looking to expand its presence in China.

  • In its latest results briefing, Raffles Medical (SGX:BSL)'s management indicated that the number of patient visits at its China operations has been steadily rising, with numbers for its hospital in Chongqing doubling in the past year. A similar view was shared by Dr Vincent Chia, managing director of Raffles China Healthcare, a subsidiary of Raffles Medical in the following news article by Forbes.
  • Referring to its China operations, Dr Vincent Chia said: “Things are starting to look slightly more relaxed, but in a very coordinated fashion”. Dr Chia also mentioned that the company plans to increase the number of cities it serves to 20 in the next 3-5 years. In China, it currently provides healthcare service in 8 cities, including Hong Kong.
  • Raffles Medical has already received approval to open a centre for assisted reproductive therapy and in vitro fertilisation in Hainan, China. In this facility, it intends to invest S$10m, and it expects to begin providing services in 1Q23.

China operations on track with guided initial losses.

  • We maintain that its Shanghai hospital, whose operations began in late 4Q21 but were interrupted in 1H22 due to lockdowns related to COVID-19, should see a gradual resumption in patient inflows during 2H22F.
  • For the hospitals in Chongqing and Shanghai, Raffles Medical has maintained its 2022 EBITDA loss guidance of S$3-4m and ~S$10m.

Looking to shore up funding to assist acquisitions.

  • In addition to a S$135m net cash position, Raffles Medical has announced the establishment of a S$1bn multi-currency medium-term notes programme, which will enable it to raise additional funding. We believe this could enable the company to explore acquisition opportunities in markets in which it operates.
  • As per news report by Bloomberg, ByteDance has recently acquired one of China’s largest private hospital chains for about US$1.5bn. We believe growth opportunities could exist in China, which is working towards its “Healthy China 2030" blueprint that was announced in 2016.

ESG premium.

Shekhar Jaiswal RHB Securities Research | https://www.rhbgroup.com/ 2022-08-31
SGX Stock Analyst Report BUY MAINTAIN BUY 1.650 SAME 1.650