Earnings moderate post normalisation
- 9M23 PAT fell 26% y-o-y to S$72.8m (53% of our FY23F estimate). 3Q23 performance fell 67% y-o-y and 9% below that of 3Q19, moderating more than expected
- Soft earnings led by i) discontinued Covid activities, ii) cost inflation, iii) gestation losses, iv) higher insurance claims
- TCF has been extended to Feb 25; plan in place to right-size and improve operational efficiencies in China
- Maintain HOLD rating; lower TP to S$1.00
3Q23 performance moderated more than expected, led by the discontinuation of Covid-19 activities, cost inflation, gestation losses from China, and higher insurance claims.
- Raffles Medical’s 3Q23 performance moderated more than expected after delivering an exceptionally stellar year in FY2022, which forms a high base. 3Q23 PAT fell by 67% y-o-y to S$12.4m and 9% below that of 3Q2019. 9M23 PAT fell 26% y-o-y to S$72.8m, making up 53% of our FY23F estimates.
- While Singapore’s core operations remain strong and profitable, the discontinuation of Covid-19 activities, cost inflation, and gestation losses from China continue to weigh on performance and profitability.
- The standalone vaccination centres have been discontinued and there has been a drop in Covid tests as we return to normalisation.
- In addition, RafflesHealthInsurance (RHI) registered higher claims in 3Q23.
- Operationally, Raffles Medical’s contract to manage the Transitional Care Facilities (TCF) at Expo has been extended to Feb 2025.
However, management expects profit will likely be less now, given that the tenders were a lot more competitive.
- Management has highlighted that it will right-size and rationalise its China operations to achieve better operating efficiencies.
- Nevertheless, the gestation losses of the two China hospitals (RafflesHospital Chongqing and RafflesHospital Shanghai) are within expectations. As the ramp-up of the hospitals were disrupted by the Covid-19 pandemic, management expects the ramp-up of both hospitals to resume this year, with c.S$10m of EBITDA losses at each hospital, and targets potential breakeven by year 3.