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Raffles Medical kept at 'neutral' as Singapore operations flatline

Samantha Chiew
Samantha Chiew • 3 min read
Raffles Medical kept at 'neutral' as Singapore operations flatline
Raffles Medical kept at 'neutral' as Singapore operations flatline
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SINGAPORE (Apr 28): RHB Group Research is maintaining its “neutral” recommendation on Raffles Medical Group (RMG) with a slightly lowered target price of 93 cents from 96 cents previously.

Yesterday, the group announced that its 1Q20 profit after tax decreased by 45.4% to $7.5 million from $13.7 million in 1Q19. This was mainly due to the group’s China Healthcare Division, which was severely impacted by the Covid-19 pandemic.

This came on the back of a marginal 0.3% fall in revenue to $128.0 million, compared to $128.3 million a year ago.

In its statement, the group said, “As China begins its recovery, we are happy to see walk-in patients returning to our Raffles Hospital Chongqing and clinics in Beijing, Nanjing and Shanghai. In Singapore, we look forward to the reduction of Covid-19 cases amongst the foreign workers and the end of the lockdown on 1st June 2020, when we can serve our patients face to face again.”

See: Raffles Medical posts 45.5% lower 1Q earnings of $7.5 mil on Covid-19 impact in China, Hong Kong

In a Monday report, analyst Juliana Cai says, “This was largely in line with our expectations, as RMG’s hospital operations were impacted by a declining foreign patient load and elective patients deferring treatments since the start of the pandemic.”

“We believe Singapore’s recent COVID-19 escalation will continue to hit RMG’s 2Q20 operations, as both medical tourism and local patient numbers decline amid border closures and the circuit breaker measures,” adds Cai.

Some of the group’s clinics in China were instructed to close during this period, while Raffles Hospital Chongqing could only operate with a significantly smaller patient load. But the clinics have since open and the analyse seems upbeat on this, but expects a longer turnaround period for its Chongqing hospital.

Meanwhile, the analyst believes that revenue remained flat, as the group could have been propped up by an increase in insurance contracts and other services, such as temperature screenings and Emergency Care Collaboration with the Health Ministry.

On the whole, the outlook for RMG remains cloudy for now.

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

While China has begun its recovery, the number of Covid-19 cases in Singapore has escalated since end March. As a result, RMG’s 2Q20 earnings is expected to be muted as well.

“We do not expect a sharp recovery in hospital patient loads, even after the country’s circuit breaker measures are expected to be lifted on June 2. This is because foreign patients are likely to continue avoiding Covid-19-affected regions while elective patients may choose to defer treatments for as long as possible,” says Cai.

As at 12.25pm, shares in RMG are trading at 87 cents or 1.8 times FY20 book with a 2.9% dividend yield.

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