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Analysts remain neutral on Raffles Medical as it copes with the flu bug

Amala Balakrishner
Amala Balakrishner • 3 min read
Analysts remain neutral on Raffles Medical as it copes with the flu bug
Raffles Medical Group has caught “a common cold, not flu” say DBS analysts Rachel Tan and Andy Sim
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SINGAPORE (Feb 25): Analysts remain cautious in their calls for Raffles Medical, following the release of its FY2019 results on Feb 24.

In what DBS analysts Rachel Tan and Andy Sim deem as a “common cold, not flu”, the group posted a 14.1% drop in earnings to $58.1 million. This comes on the back of the start-up costs it incurred from the opening of its Raffles Hospital Chongqing in January 2019.

The decline is in spite of a 6.7% increase in revenue to $522 million from higher contributions to its healthcare and hospital services divisions.

Overall, net profit was down 15.2% to $60.3 million, from the $71.1 million it logged in FY2018.


See: Raffles Medical posts 14.1% drop in FY2019 earnings, but looks for novel measures to cope with Covid-19

The is in line with expectations, say analysts from DBS, Maybank Kim Eng, CGS-CIMB and RHB.

They are now turning cautious amid expectations of the group’s near-term operations being impacted by the ongoing novel coronavirus (Covid-19) outbreak.

This is as private healthcare is expected to face to the brunt of the economic slowdown as elective procedures are deferred or patients choose public hospitals as a cheaper alternative, Tan and Sim point out.

Maybank Kim Eng analyst Gene Lih Lai agrees, saying “using SARS as a guide and assuming Covid-19 will have two quarters of negative impact to [the group]”. She adds that the group’s management estimates that this may affect its revenue growth by around 6 percentage points.

CGS-CIMB analyst Ngoh Yi Sin feels otherwise and expects the group to have continued revenue growth, especially from its Singapore business.

She says: “management does not expect significant impact [here] given : 1) this coincided with a seasonally weak period of Chinese New Year, 2) the availability of telemedicine as an alternative channel for consultation and 3) patient volumes rebounded strongly in both its clinics and hospitals post 2003-SARS”.

Additionally, Ngoh believes Covid-19 will increase patient visits to Raffles Hospital Chongqing since it is fully operational and is an approved hospital for local Chinese patients to claim medical expenditures under the republic’s social health insurance scheme (Yibao).

“We see [the group] as a potential beneficiary of more Yibao volumes (improved affordability) as well as redirection of patient footfall from the possibly overcrowded public hospitals,” says Ngoh.

To this end, she is maintaining her ‘buy’ call on the group with a target price of $1.16.

“Our investment thesis of the stock is unchanged [and we expect a]: bottoming out of FY20F earnings, undemanding valuation of 1 standard deviation below its 5-year historical mean and improving return on equity,” explains Ngoh.

Conversely, Maybank Kim Eng’s Lai, DBS’ Tan and Sim and RHB’s Julianna Cai are maintaining ‘neutral’ calls at target prices of $1.06, $1.02 and 96 cents, respectively.

Says Cai on her 96-cent call: “We cut FY20-21F earnings by 14% and 12% on the back of lower revenue forecasts and delays in the turnaround of its China hospitals”.

Meanwhile, Lai says her 1-6% cut of earnings per share for FY20-22E accounts for the management’s stance and a shifting in the portion of gestation losses from the delayed opening of Raffles Hospital Shanghai.

As at 11.15am, shares at Raffles Medical group were down 0.98% higher at $1.01.

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