Growth set to normalise postpandemic
Cuts FY22-24E EPS but remain long-term positive
FY21 PATMI of SGD84.2m (+27.7% YoY) came in ahead of MIBG and consensus estimates by 9%/11%. While 2H21 net profit fell 8.1% YoY to SGD44.7m on lower other operating income (-56.2% YoY), arising from less government grants such as JSS payout and property tax rebate, this was largely expected, in our view. We cut our FY22-24E EPS by 8-12% due to lower contributions from Covid-19-related services and its China hospitals. This reduces our DCF-based TP to SGD1.50 (LTG: 3%, COE, 8%) but maintain BUY with 16% upside potential. Transfer coverage to Eric Ong.
Expects Covid-19 support activities to taper off
2H21 revenue grew by 16.3% YoY to SGD380m, boosted by sales of Covid19 related products & services given the Delta-strain wave. On a segmental basis, turnover from the Healthcare Services division grew by 61.3% YoY, whilst Hospital Services division declined by 6.2% YoY in 2H21. We forecast Covid-19 support activities to taper off sequentially, especially its PCR test revenues as Singapore relaxes testing protocols for VTL travellers. On a positive note, international travel should gradually resume and we expect some of RFMD’s regional patients to return as borders reopen.
Breakeven of China hospitals may be delayed
Meanwhile, China is experiencing sporadic COVID-19 clusters that may impact some of RFMD’s operations there. Management has guided that break even for its Chongqing hospital is likely to be delayed by a year to 2022, and Shanghai operations could incur EBITDA loss of SGD10m this year. That said, the group remains optimistic its three hospitals in China will continue to see improved patient loads with easing movement restrictions.
Beneficiary of the increased focus on primary care
The group declared a slightly higher-than-expected final DPS of 2.8 cents, which comprises core DPS of 1.8 cents and a special DPS of 1.0 cent for FY21. In the recent Budget 2022, the government proposed to restructure the local healthcare eco-system by allowing GPs to play a greater role given the fast-aging population. This should also benefit RFMD in the longer term given its large primary care networks.