• Maintain BUY and SGD1.70 TP, 20% upside and c.3% yield. Raffles Medical operates a transitional care facility (TCF), which we believe assisted it in reporting strong healthcare revenue in 2H22 despite phasing out COVID-19-related services. Although its TCF arrangement is subject to review by mid-year, the group will likely continue operating the TCF beyond Jun 2023 – translating to better-than-expected margins in 2023. We remain positive on RFMD’s long-term growth, which is dependent on its China operations generating profit. Its forward P/E remains compelling vs regional peers.

• Singapore public hospitals are running at almost full capacity. Public hospital bed occupancy has risen from a pre-COVID-19 level of 87.6% in 2019 to 93.1% in 2022. This is largely due to the higher number of older patients with complex conditions who require longer hospital stays. The percentage of senior patients aged 65 and above has risen from 39% in 2019 to 43% in 2022, and many of them are frail and have underlying medical conditions.

• TCFs will be retained as a key part of Singapore’s healthcare system. TCFs are for medically stable patients from public hospitals waiting for long-term care arrangements, such as home or nursing home care. During the pandemic, TCFs helped strengthen Singapore’s hospital capacity. Singapore had set up 500 TCF beds in five sites, and they were run by private operators. RFMD currently operates a TCF at the Changi Expo. Singapore's Health Minister, Ong Ye Kung, said that the TCFs set up during the pandemic to prevent hospitals from being overwhelmed have proven so valuable that they will be retained as a key part of Singapore’s healthcare system. As Singapore plans to expand the TCF presence in the city-state, we believe the group could continue operating its TCF beyond Jun 2023.

• Unchanged long term investment thesis. Higher than pre-COVID-19 patient load at its healthcare clinics as well as a rise in elective surgeries at its Singapore hospital amid the gradual return of foreign patient load should support near-term earnings. RFMD's China hospital business, which was hampered by the COVID-19 pandemic, is expected to resume operations gradually this year, now that the country has relaxed COVID- 19-related restrictions. Despite being in its second year of operation, the EBITDA losses for its Shanghai hospital were comparable to what management had anticipated in the first year. RFMD still expects its Shanghai hospital to break even (in terms of EBITDA) in 2-3 years. It has an SGD1bn multi-currency medium-term note programme in addition to a SGD180m net cash position, which will allow it to undertake an acquisition if a compelling opportunity arises. Our TP, which includes a 2% ESG premium, implies a 26x 2023F P/E, which is still lower than the regional peer average.

Source: RHB Research - 24 Mar 2023