• Keep BUY and SGD1.70 TP, 16% upside and c.3% yield. We recently hosted Raffles Medical’s investor meetings and came back feeling positive about its longer term growth prospects in Singapore and China. Extension to the current transitional care facility (TCF) arrangement – subject to a review by mid-year – and the possibility of operating additional TCFs in Singapore would be positive in the near term. China’s reopening, one- child policy relaxation and ageing population should drive longer term revenue growth given RFMD’s recent expansion into China.

• RFMD remains competitively positioned in Singapore, with potential for growth. In terms of pricing, the group is more competitively placed compared to other private healthcare players in Singapore. Its group practise model, although increasing operating costs due to increased pressure on staff retention, also enables it to provide team-based patient- centred care that puts the interests of its patients as the prime focus. This, we believe, will enable it to collaborate better with the Singapore Ministry of Health on the proposed expansion of TCFs, which are supposed to augment Singapore’s public healthcare infrastructure. We believe RFMD could continue operating its TCF beyond Jun 2023 and have opportunities to participate in operating new TCFs that will be offered under the tendering process.

• China to see revenue growth. Its China hospital business, which was disrupted by the COVID-19 pandemic, should see a ramp-up in operations. Management guided that the EBITDA breakeven period for its new China operations remains at 2-3 years, implying that the Shanghai hospital could record negative EBITDA in 2023-2025. It opened a centre for assisted reproductive therapy and in vitro fertilisation in Hainan, China. We believe the centre could benefit from China’s ageing population and its recent policy of allowing couples to have three children.

• Inorganic growth opportunities. RFMD is in a SGD252m net cash position, and we expect it to generate >SGD100m of free cash flow in each of the forecasted years. It has also announced the establishment of a SGD1bn multicurrency medium-term note programme with DBS (DBS SP, BUY, TP: SGD39.80). This, we believe, could enable it to explore inorganic growth opportunities in China and the Indochina region.

• We see further upside to its share price. Our TP for RFMD, continues to be based on the average value derived from using the P/E, P/BV, EV/EBITDA, and DCF valuations. As RFMD has an ESG score of 3.11 out of 4 (ie slightly above the country median), our TP includes a 2% ESG premium over its intrinsic value of SGD1.65.

Source: RHB Research - 24 Apr 2023