A transition year post-Covid-19
? FY21 core net profit fell short at 91% of our estimate due to S$11m in government grants but was in line with consensus at 96%.
? FY21 revenue was within expectations at 101%/104% of our/consensus estimates as momentum from Covid-19-related services continued in 2H21.
? Lacking short-term catalysts but weakness priced in. Lowered FY22-23F EPS by 21-23% and reiterate Hold with lower SOP-based TP of S$1.33.
Continuing the nation’s fight against Covid-19
RFMD saw 2H21 revenue improve 16.3% yoy/10.5% hoh as Covid-19-related revenues intensified during the height of the Delta wave between August and October in Singapore. Increased contribution came from more extensive community testing using Polymerase Chain Reaction (PCR) tests, vaccination and provision of healthcare services in Community Treatment Facilities (CTFs). Nevertheless, w ith Singapore moving ahead with re-opening the economy as w ell as relaxation of preventive measures, such as testing guidelines for travellers, w e are expecting Covid-19 contributions to decline by 70% from an estimated S$220m in FY21 to c.S$70m p.a., flat, in FY22F-24F.
Cautiously optimistic on Singapore’s pace of recovery
Singapore’s stance to treat Covid-19 as endemic is a welcome move that should spur the return of foreign patients. Given the uptrend in domestic patient load, RFMD should see improving operational metrics for its flagship hospital in Singapore. However, the competition for foreign patients has become stiffer as the healthcare quality of regional peers, such as Malaysia, Indonesia and Thailand improve, with better affordability compared to Singapore. Nevertheless, RFMD continues to provide healthcare services to
its foreign patients via means such as teleconsultation through its netw ork.
Doing the hard work in China
China’s ‘zero Covid’ strategy has resulted in prolonged operational constraints for RFMD’s hospitals and clinics within China. As a result, the gestation period for Raffles Hospital Chongqing and Raffles Hospital Shanghai, two of its newest and largest operations in China, could be extended by 6-12 months given the slower uptick of patient loads. We have thus pushed back aggregate EBITDA contribution from China to FY24F. Nevertheless, revenues from Greater China improved 44% yoy to S$49m, suggesting overall business improvement, which management echoed.
Lower expectations in a transition year; reiterate Hold
The exceptional growth in FY21 will be tough to beat. We lower our FY22-23F EPS forecasts by 21-23% to reflect normalised earnings amidst a challenging operating environment arising from post-pandemic region trends. We roll forward our SOP valuation and revise our TP to S$1.33 from a lack of catalysts but note that valuations remain undemanding at implied c.15x forward EV/EBITDA, close to 1 s.d. below its 5-year mean.