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Another shot in the arm

Reopening is good for healthcare plays

Singapore and Malaysia have each revealed plans to start reopening their borders, as vaccination rates have reached 85%/66% respectively. The transition from zero-Covid strategy towards “living with Covid-19” provides several angles that RFMD can benefit from, while strong dental business continues to sustain Q&M’s prospects. We raise RFMD’s DCF TP to SGD1.68 (WACC: 8.03%, LTG: 3%) as we increase FY21-23E EPS by 2-8%, among other tweaks to the model. Maintain BUYs on RFMD and Q&M.

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RFMD has the most levers to benefit from reopening

In our view, RFMD is a net beneficiary of Singapore’s continued reopening stance. First, as the sole provider of PCR tests for vaccine travel lanes (VTL) currently, RFMD benefits from the nine additional VTLs (total: 11). Second, the government is already rolling out vaccination booster shots, which may imply more resilient vaccination revenue than we originally expected. Third, as the public healthcare system is currently stressed, we believe RFMD’s emergency care collaboration (ECC) with the government will continue to be relevant to help manage capacity at public hospitals. Foreign patients remain slow to recover, but we believe is an upside driver when tourists from more countries (e.g. Indonesia) are able to travel to Singapore more freely.

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Room for Q&M to grow foreign patient load

As Singapore extends its quarantine-free travel to more countries, MOH announced on 9 Oct 2021 that Covid-19 testing protocols have been streamlined to rely more on antigen rapid test (ART), which typically
produces results in less than 20 minutes. PCR testing capacity is to be reserved mainly for people who are unwell and symptomatic Covid-19 patients, as well as VTL travellers. We are leaving our TP and EPS estimates intact for now due to its robust core dental business (with foreign patients account for <5%), while the rising Covid-19 cases should still support its testing revenue in the near term. On 12 Oct-21, Q&M bought 1.4m shares in the open market at SGD0.555-0.56 following a recent sell-off.

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TMG is another potential beneficiary

Thomson Medical (TMG SP, NR), which derives c.75% of revenue from Singapore and the balance from Malaysia, believes that easing of restrictions should aid in higher patient load in key services like obstetrics, gynaecology and paediatrics. In Malaysia, construction of its 400-bed new wing at Thomson Hospital Kota Damansara is completed and should commence operations in 4Q21. It also owns the proposed Thomson Iskandar Medical Hub, in Johor Bahru. For the sector, downside risks include: i) overestimation of China growth for RFMD, and/or the resilience of Covid-19 related revenue; ii) keen competition for Q&M dental business and weaker-than-expected testing revenue.