Felicia Tan Mon, Jun 20, 2022
RHB Group Research analyst Shekhar Jaiswal has kept his “buy” call on Raffles Medical with a lower target price of $1.50 from $1.55 previously.
In his view, China’s Covid-19-related lockdowns could still impact the group’s operations in the country.
“[The impact] could still be visible in [Raffles Medical’s] 1HFY2022 earnings,” the analyst writes in his June 20 report.
“We had expected Raffles Medical’s Shanghai hospital, which commenced operations in 2021, to see meaningful revenue in 2022. Nevertheless, the Covid-19 related lockdowns that Shanghai witnessed in 2Q22 could have delayed the ramp up in Shanghai operations,” he adds.
Furthermore, China’s doubling down on zero Covid-19 cases, in addition to fresh announcements of mass-testing drives in Beijing and China, could delay the ramp up in Raffles Medical’s China operations.
“As per original estimates, Raffles Medical’s Chongqing hospital was expected to see an EBITDA breakeven by end 2022. The Shanghai hospital was expected to achieve an EBITDA breakeven by 2024,” the analyst notes.
However, all is not lost as the analyst expects the return of medical tourism and normalised business operations in Singapore to offset the decline in Covid-19-related revenues.
“While current numbers are hard to come by, [a] news report [from The Straits Times] suggests that medical tourists were returning back to Singapore since April 1, when the Covid-19 restrictions were eased, more flights were added, and the need for special clearance to come to Singapore for treatment was removed,” the analyst writes.
Prior to the pandemic, Singapore was receiving an estimated 500,000 foreign patient arrivals a year.
To this end, Jaiswal is lowering his profit estimates for Raffles Medical by 3% to 4% in the FY2022 to FY2024, although he sees that the group should deliver profit growth in the same period. The analyst is also remaining positive on the group’s long-term outlook.
“We see 2022 as a transition year for Raffles Medical as the decline in Covid-19- related revenue should be partially offset by higher Singapore revenue. High inflation and the tight labour market would also keep operating costs elevated,” he writes.
In addition, the analyst likes the group’s compelling valuations based on its current share price, with its current P/E for the FY2023 standing below its peer average of 31x.
Raffles Medical’s net cash position of $91 million should also enable it to look at inorganic growth opportunities, which is a plus.
As at 9.28am, shares in Raffles Medical are trading 1 cent lower or 0.89% down at $1.11.