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Testing record-high earnings level

  • Biggest beneficiary of increased demand for PCR tests with pent-up demand for travel 
  • Recovery of elective procedures and return of medical tourism in “new normal”
  • FY22F – FY23F earnings could hit record high despite gestation losses 
  • Maintain BUY; raised TP to S$1.81
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Investment Thesis

Biggest beneficiary of increased demand for PCR tests with pent-up demand for travel. Raffles Medical, as the largest COVID-19 service provider and key PCR test provider at Changi Airport, is the biggest beneficiary of pent-up demand for travel with progressive relaxation of borders. 

Recovery of elective procedures and the return of medical tourism in “new normal”. Raffles Medical stands to benefit from the recovery of elective procedures and the return of medical tourism into Singapore in “new normal”, to offset some tapering of COVID-19 related services. 

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FY22F-FY23F earnings could hit record high despite gestation losses. We estimate that the company could achieve record-high FY22F-FY23 earnings despite China hospitals’ gestation losses, offset by strong COVID-19-related services and recovery of elective procedures and foreign patients. 

Valuation:

We have raised our TP to S$1.81 from S$1.48 previously, based on sum of parts. We applied the historical mean PE (from 2012) of 34.5x to FY22F earnings, plus S$0.20 per share for its China hospitals.

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Where we differ:

Highest estimates vs consensus. Our FY21F-FY23F earnings estimates are one of the highest vs consensus, as we expect contribution from COVID-19-related services to surprise on the upside. 

Key Risks to Our View:

New variants of COVID-19 pandemic slowing down recovery. New waves of the COVID-19 pandemic could slow the recovery of private healthcare demand.

Higher- and longer-than-expected gestation losses from China hospitals may drag earnings growth.