Photo of Raffles Hospital Shanghai: Raffles Medical Group

The latest 1H2021 earnings of <a href="https://www.theedgesingapore.com/tags/raffles-medical-group-rmg" target="_blank">Raffles Medical Group</a> shows that the healthcare provider has been immunised to the coronavirus.

The group’s PATMI (profit after taxes minus interest) of $39.4 million beat expectations of analysts from RHB and CGS-CIMB.

<hr/>See: <a href="https://www.theedgesingapore.com/capital/results/raffles-medical-posts-1287-surge-1h2021-earnings-expects-be-more-profitable-year" target="_blank">Raffles Medical posts 128.7% surge in 1H2021 earnings; expects to be more profitable this year</a><hr/>

A substantial lift came from the Raffles Medical’s involvement in Covid-19 related services such as Polymerase Chain Reaction (PCR) testing, assisting in the national vaccination programme and pre-departure swabbing of cruise passengers. These collectively raised the revenue earned under its healthcare and hospital services segments.

Overall, the group’s revenue for the first six months of the year jumped by 42.4% to $343.8 million, with $206.0 million coming from its healthcare services division and $171.4 million from its hospital services.

The remaining $11.7 million came from its investment holdings – which comprises holdings related to investment properties.

“We think the strong revenue derived from Covid-19 related services is likely to continue even as Singapore moves towards the endemic playbook,” CGS-CIMB analyst Tay Wee Kuang writes in a July 26 note.

However, he reckons that there may be a dial-back in the group’s revenue as some vaccination centres are expected to cease operations as local testing volumes ease when the population builds tolerance for higher infection rates.

Still, Tay believes this will be mitigated by the group’s involvement in other Covid-19-induced services such as pre-event screening and pre-departure and on-arrival Covid-19 testing.

Agreeing, RHB analyst Shekhar Jaiswal says that a gradual return to business-as-usual could translate to a return in patient load at Raffles Medical’s clinics.

Meanwhile, both Tay and Jaiswal are expecting stronger revenue growth from the group’s hospitals in China, which accounted for around 7% of its 1H2021 revenue.

RafflesHospitalChonqing – which commenced operations in 2019 – saw a reduction in its EBIDA (earnings before interest, depreciation and ammortisation) in the recent 1H2021 period.

Jasiwal estimates that it will report EBITDA losses of around $5 to $6 million in FY2021 ending in December, before eventually breaking even in FY2022.

RafflesHospitalShanghai – which opened its doors on July 26 – is expected to breakeven in three years. Tay notes that the facility is slated to log EBITDA losses of around $8 to $10 million in FY2021.

Unlike Jasiwal, Tay believes the two hospitals will only see positive EBITDA contributions in FY2024.

With a cash position of $215.7 million as at end 1H2021, Tay highlights that the group’s cash position is strong. This allows it to consider inorganic growth opportunities through internal resources or external funding, he elaborates.

The way Tay sees it, accretive businesses are among those the group should consider acquiring.

Agreeing, Jaiswal says that opportunistic acquisitions could raise the group’s debt, thereby enabling it to grow faster and enhance its ROE (return on equity).

To this end, he is maintaining his “buy” call on Raffles Medical at a higher target price of $1.45. This is up 10 cents from his previous $1.35 call, and is believed to give the counter a 10% upside.

This target implies 38x2022 price-to-earnings (P/E), in line with the average of the group’s peers.

“We raise 2021-2023 earnings by 6-11% and expect a 27% profit CAGR during 2020-2023. FY2022 is now expected to exceed pre-pandemic earnings levels,” Jasiwal explains.

Rachel Tan, an analyst at DBS Group Research, is also maintaining her “buy” call at a higher target price of $1.48. This is 4 cents from her previous $1.40 target and is believed to give the counter a 12% upside.

“We estimate earnings could surpass the pre-Covid level in FY2022 with contributions from Covid-19-related services and medical tourism,” Tan explains.

Her only concern is that private healthcare could be impacted by a slowdown in the economy.

Meanwhile, Tay has a “hold” on the group, a downgrade from his previous “add” call. However, he has raised his target price on the group to $1.44, up 4 cents from his previous $1.40 call.

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This, he says, will give the counter an 8.9% upside from its current $1.32 price.

“We revise FY2021-23 EPS (earnings per share) upwards by 4.6%-15.9% on stronger-than-expected revenues from Covid-19-related services in 1H2021 and higher EBITDA margins,” he notes.

He believes the market has started pricing in higher EPS and further growth will be contingent on improved China operations.

As at 1.14pm, shares in Raffles Medical Group were up 10 cents or 0.76% to $1.33.

Analysts mixed on Raffles Medical even as it appears immunised to the Covid-19 bug

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