CGS-CIMB Research analyst Cezzane See is upgrading her recommendation on Raffles Medical to “add” from “hold” previously with an increased target price of $1.22, which represents a 12.9% upside on the stock as at her report dated May 28. 

Raffles Medical has a position as one of the key private players in supporting nationwide Covid-19 testing in Singapore, especially as Changi Airport’s dominant tester. 

“As Singapore ramps up PCR testing to 89k tests daily, [See forecasts] RFMD’s daily testing to reach [around] 6,000 per day in FY2021-2023F and to lift [their] FY2021-2023F earnings per share (EPS) by 12.1-15.9%.”

See predicts that this lifts FY2021 to FY2023F revenues by 8-10% and net profit by 10.2-12.7%. 

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Thus, See has increased Raffles Medical’s sum-of-the-parts (SOTP)-based target price from $1.10 previously to $1.22. 

Raffles Medical’s 1HFY2020 revenues fell 7% y-o-y as local patients deferred elective surgeries and medical tourism fell. 

However, the trend had reversed in 2HFY2020 with revenue growing 23% y-o-y, mainly due to the provision of Covid-19-related services. This contributed to overall revenue growth of 9%, a reversal from the 5% decline in revenue for 1HFY2020. 

In FY2020, See estimates that Raffles Medical’s Covid-19-related services amounted to $83 million, with $60 million likely attributable to Covid-19 testing and the remainder from facilities management revenues for community care facilities, air border temperature screening and workers dormitories. 

The accelerated vaccination programme in Singapore, which is planned to reach 4.7 million people by August 2021, could see slight incremental revenue for Raffles Medical Group as it operates 12 of 36 vaccination centres. 

On top of that, two of its clinics have been designated as vaccination locations as well which will see marginal increments to revenues for FY2021. 

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Potential catalysts on the counter include an additional testing lab in Changi. “RFMD began operating a new testing laboratory in Changi Airport starting Jan 2021, which could support higher Covid-19 testing capacity. Visitor arrivals were at 24,000 in April 2021 or 800 tests per day.”, which has not been factored into See’s EPS.

Raffles Medical shares closed 6 cents higher or 5.556% up at $1.14 on May 31, or 2.21 times P/B, according to CGS-CIMB’s estimates.