Restoring normalcy
- FY21 saw one of Raffles’ best-ever results, with contributions from COVID-19-related services
- Key positives: i) Continued to adapt to support COVID-19 initiatives, ii) both healthcare and hospital revenue are above pre-COVID levels (2019), iii) FY21 dividend is higher than the previous commitment
- Key negatives: i) Hospital volume is c.10% below pre-COVID levels, ii) China gestation losses prolonged
- Maintain BUY; lowered TP to S$1.63
Investment Thesis
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 in Singapore in the “new normal”, to offset some tapering of COVID-19-related services.
Raffles Medical adapts and changes to support the government’s COVID-19 initiatives. Raffles Medical, as the largest COVID-19 service provider, will continue to support the government’s COVID-19 initiatives in the community or at Changi Airport.
FY22F-FY23F earnings may stay elevated despite gestation losses. Given the company’s record high FY21 results, we expect earnings to stay elevated, despite China hospitals’ gestation losses, with some pent-up demand coming in from postponed elective procedures and foreign patients.
Valuation:
We lower our TP to S$1.63 from S$1.81 previously, based on a sum-of-the-parts model. We applied the historical +0.5SD PE (from 2012) of 32x to FY22F earnings, plus S$0.20 per share for its hospitals in China.
Where we differ:
Higher forward estimates vs. consensus. Our FY21F-FY23F earnings estimates are one of the highest vs. the consensus, as we expect earnings should stay elevated, given the recovery of elective procedures and the return of medical tourism, while we await positive contribution from Raffles Hospital Chongqing.
Key Risks to Our View:
New variants of COVID-19 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 hospitals in China may drag earnings growth.