• Reiterate BUY, new SGD1.50 TP from SGD1.55, 34% upside and c.2% yield. While China’s COVID-19 cases have eased and so have the related lockdowns, we believe its impact on Raffles Medical (RFMD)’s China operations could still be visible in 1H22 earnings. With China doubling down on a zero COVID-19 policy and fresh announcements of mass- testing drives, could delay the ramp up in RFMD’s China operations. Nevertheless, we remain optimistic on RFMD’s Singapore operations gradually reverting to normal and on it, delivering growth in 2023 and beyond. After a weak share price performance, valuations are looking compelling as well.

• Return of medical tourism and normalised business operations to offset decline in COVID-19 related revenues. Prior to the pandemic, it is estimated that the foreign patient arrivals in Singapore were at around 500,000 a year. While current numbers are hard to come by, news report suggests that medical tourists were returning back to Singapore since 1 Apr 2022, 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. RFMD has seen foreign patients from Indonesia, Cambodia, and Vietnam returning to Singapore. This, in addition to normalised business operations for Singapore healthcare clinics and hospital operations, would help RFMD offset the decline in COVID-19 related revenues.

• China growth may get delayed. We had expected RFMD’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. As per original estimates, RFMD’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. We believe China reinforcing its zero COVID-19 policy and fresh announcements of mass-testing drives in Beijing and Shanghai could further delay the ramp up in RFMD’s China operations.

• Lowering near term growth; still positive on long-term outlook. We see 2022 as a transition year for RFMD, 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. We lower 2022-24 profit estimates 3-4%, but maintain that RFMD should deliver profit growth in 2023-24.

• Net cash position; compelling valuations. RFMD’s SGD91m net cash positon should enable it to look at inorganic growth opportunities. Our TP, which includes a 2.2% ESG premium is based on a fair value of SGD1.48. RFMD’s current 2023F P/E is below its peer average P/E of 31x

Source: RHB Research - 20 Jun 2022