Raffles Medical is Maybank’s preferred pick in the healthcare sector. However, analyst Eric Ong highlights that the company’s 1HFY2023 turnover fell 9.5% y-o-y to $370.9 million, mainly due to fewer Covid-19 related activities especially PCR test and diagnostic revenues.

“That said, the return of foreign patients seeking high-end medical treatments in Singapore saw external revenue from its hospital services division rise 8.3% y-o-y to $139.8 million,” says Ong.

RHB’s Shekhar Jaiswal notes that foreign patient load has only returned to 70% to 80% of the pre-Covid-19 level. This is due to a lower number of patients from China and a stronger Singapore dollar, which could be dissuading the return of some cost-sensitive patients, he adds.

“The decline in workforce costs due to the reduction of Covid-19 related activities is now well accounted for, implying that margins are normalising,” says Jaiswal.

For Raffles Medical’s China operations, turnover have “recovered nicely” by 16.2% y-o-y to $28.8 million in 1HFY2023, says Ong. In its update, the company says normal activities have resumed in the country, although it noted that its Shanghai hospital seems to be doing better than Chongqing given a larger pool of expatriates there.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/it-time-revisit-ifast-ubs-nearly-doubles-its-target-price-10-hong-kong-growth?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>'Is it time to revisit iFast?' UBS nearly doubles its target price to $10 on Hong Kong growth</a>

However, PhillipCapital analyst Paul Chew notes that Raffles Medical's China operations are still experiencing operating losses at an estimated at $12 million to $14 million. "The next few years are the investment phase to build brand awareness of the hospital amongst the locals. We believe locals still prefer government hospitals for their perceived pool of more experienced doctors," Chew adds.

Raffles Medical’s net cash position grew to $207.7 million in 1HFY2023 from $157 million in FY2022, even after paying out $70.7 million in dividends during the period. This allows the company to keep a lookout for potential investment opportunities while generating positive net finance income of $1.7 million in 1HFY2023, notes CGS-CIMB analyst Tay Wee Kuang.

To this end, Raffles Medical has shared that it is exploring mergers and acquisition opportunities across the region — in countries such as Vietnam, Indonesia and Cambodia — that could synergise with its core healthcare business. It is also not averse to exploring other means to deploy its cash, such as share buybacks and special dividends, Tay points out.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/brokers-calls/rhb-keeps-add-yangzijiang-financial-improving-conditions-pave-way-npl?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>RHB keeps 'add' on Yangzijiang Financial as improving conditions pave the way for NPL recoveries</a>

Meanwhile, Raffles Medical’s contract to operate the Changi Expo transitional care facility (TCF) has been extended for a few months as the tendering process is still ongoing. It will not only participate in the retendering process for the current TCF, but will also bid for any other TCF facilities that gets offered by the government for management, Jaiswal highlights.

CGS-CIMB has lifted its target price for Raffles Medical to $1.77 from $1.75 previously after it raised the company’s FY2023 to FY2025 EPS estimates by 4.8% to 10.5% to reflect stronger revenues and finance income. This will translate into a new semi-annual net profit run rate of about $60 million, almost double the FY2017-FY2019 average of about $34 million.

The RHB, Maybank and PhillipCapital analysts have kept their target prices at $1.75, $1.65 and $1.76 respectively.

As at 11.25am, shares in Raffles Medical are trading 5 cent lower or 3.62% down at $1.33.

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