• BUY, new SGD1.65 TP from SGD1.50, 38% upside with c.2% FY22F yield. Raffles Medical reported stellar 1H22 earnings. While some COVID- 19-related revenue could taper off, a normalised healthcare business, higher foreign patient load and higher revenues from China should enable it to book sequential revenue growth in 2H. We expect earnings to grow by 25% this year but remain cognisant of rising costs, and believe 2H profit may decline HoH. We lift FY22F net profit by 29% and FY23-24F earnings by 3-12%. Its valuation remains compelling (trading below peer average).

• A strong 1H22. RFMD’s recurring PATMI of SGD54m (+63% YoY, +38% HoH) accounted for 77% and 75% of our and Street full-year estimates. Revenue grew 11% YoY to SGD382m, due to the strong growth in the healthcare business (SGD250m, +22% YoY). Management said that total outpatient visits have exceeded pre-pandemic levels. As some of its COVID-19 related activities have tapered off, the hospital business saw a 5% YoY decline in revenue to SGD129m. Nevertheless, with the resumption of air travel, its foreign patient numbers have reached c.60% of pre-pandemic levels. This, RFMD hopes, will reach close to 100% by year-end.

• China hospitals to resume growth from 2H22; new business venture. RFMD’s China business has seen a steady increase in the number of patient visits, with such numbers for its Chongqing hospital doubling over the last year. The Shanghai hospital, which started operations in late 4Q21, underwent a disruption in operations in 1H22 amidst COVID-19 related lockdowns, should see gradual ramp-up in operations in 2H22. RFMD has maintained its EBITDA loss guidance of SGD3-4m for the Chongqing hospital and c.SGD10m for Shanghai hospital in 2022. RFMD has received the approval to set up an in vitro fertilisation/assisted reproductive therapy centre in Hainan, China. It plans to invest SGD10m in this facility, and expects to start offering services from 1Q23.

• Might be difficult to maintain profit at levels like that of 1H22. Normally, RFMD’s 2H revenue and profit tend to be higher than that of 1H. While we believe 2H22 revenue will be higher than that of 1H22, profits may come in lower amidst higher staff costs, increased operating expenses related to the higher patient load in Singapore and the gradual ramp-up of operations in China.

• Looking to shore up funding; trading below peer average. In addition to a SGD135m net cash position, RFMD has announced the establishment of a SGD1bn multi-currency medium-term notes programme, which will enable it to raise additional funding. Our TP, which includes a 2.2% ESG premium, implies 33x 2023F P/E – in line with its regional peer average.

Source: RHB Research - 2 Aug 2022