Analysts are upbeat on the prospects of healthcare services provider Raffles Medical Group for they expect FY2021 ending in December to bring it “some normalisation”.

In its recent results for FY2020, the group reported earnings of $65.9 million, up 9.3% y-o-y thanks to its provision of new services such as the Covid-19 Polymerase Chain Reaction (PCR) and serology testing.

See: Raffles Medical Group posts 9.3% higher FY20 earnings of $65.9 mil thanks to new services such as PCR testing

In this time, its revenue was up 8.8% on year to $568.2 million, following an 18.4% growth in the performance of its healthcare services segment, possibly due to Covid-19 related works.

This was a “positive surprise” to CGS-CIMB analyst Cezzanne See who had expected Raffles Medical’s income to come in it around $500 million in FY2020.

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Maybank Kim Eng analyst Lai Gene Lih was similarly surprised, particularly by the group’s 2H2020 PATMI (profit after taxes minus interests) which had risen 50% on year to hit $46.8 million.

“This was ahead of our and street’s expectations,” she says in a research note. Lai attributes this to: activities related to the Covid-19 battle and the government’s wage support.

Looking ahead, the group’s “management expects normalisation of most of Raffles Medical Group’s operations within FY2021, including the return of some foreign patients,” Lai notes in a research note.

She is expecting these foreign patients to return, especially to the group’s hospitals in China, since the Covid-19 vaccination has been taking place globally.

PhillipCapital analyst Tay Wee Kuang reckons this will be supported by the completion of the upgrading works at RaffleshospitalBeijing such that it can now support inpatient services and offer minimally-invasive surgeries.

“This is expected to boost profitability,” he stresses in a research note.

Aside from this, Tay says that the opening of RafflesHospitalShanghai by mid-FY2021 is something the group can look forward to.

“Being a more cosmopolitan city with a bigger expat presence, demand for private healthcare in Shanghai is expected to be higher,” he mills. 

Given the group’s existing presence in Shanghai, he reckons that its EBITDA (earnings before interest, taxes, depreciation and ammortisation) losses will be less than that incurred in the setting up of its RafflesHospitalChongqing.

RafflesHospitalChongqing is still yielding EBITDA losses of below $10 million despite having an increase in patient loads from FY2019.

However, Tay believes it remains on track to break even in FY2021 “as China has contained Covid-19 swiftly”.

Meanwhile, its operations back home has already seen an improvement in 2H2020, with local patient numbers returning to pre-pandemic levels.

CGS-CIMB’s See is positive that this will continue as the group continues its support of the government’s Covid-19 efforts and national vaccination drive through the four centres it has operations in.

Against this backdrop, she is lifting her forecast for Raffles Medical’s revenue for FY2021-FY2022 “to account for the continued Covid-19 work [and an] increase [in] tax expenses”.

Tay conversely, has lowered his earnings forecast for FY2021 by 10%, despite his prediction of the year bringing healthy revenue.

This is to factor in RafflesHospitalShanghai’s gestation in 1H2021 as well as the higher expenses related to an expanded business, he explains.

These are also areas of concern to analysts at OCBC Investment Research. “Weaker than expected ramp up at its new projects in China, costs containment issues impacting overall margins,” are other investment risks they foresee.

Still, three out of four of the analysts have posted “buy” or “accumulate” calls on Raffles Medical Group.

PhillipCapital’s Tay has a target price of $1.18, while analysts at OCBC Investment Research have a $1.15 target. Maybank Kim Eng’s Lai’s target is $1.10.

See has conversely maintained her “hold” call at a higher target price of $1.10. This is up from her previous 96 cent call and is believed to give the counter a 7.9% upside from its $1.02 price on Feb 22.

Shares in Raffles Medical Group closed up 20 cents or 1.18% at $1.12 on Mar 2.