• Still NEUTRAL, new SGD0.95 TP (from SGD0.90), 8% upside. Raffles Medical continues to explore new growth opportunities in the region amidst structural growth headwinds in Singapore. We see the commitment to pay at least 50% of earnings as dividends and to buy back 100m shares over the next two years as positives. Earnings growth should improve as its China operations should see EBITDA breakeven in 2026. We expect rerating to materialise only when a China turnaround becomes evident. RFMD's below-peer valuation seems justified by below-peer-average margin and ROE.
• Business updates. 2HFY24 healthcare revenue reflects the new run rate as patient load has normalised, and the segment is now devoid of COVID-19 related revenue. RFMD ended the transitional care facility (TCF) operations at the Expo but maintained some TCF bed allocations at Raffles Hospital. With the recovery of the foreign patient load in Singapore struggling to move past 20% amidst increased regional competition, RFMD has realigned its focus on high-value healthcare specialities. The acquisition of the Vietnam hospital is pending some regulatory clearances. In China, revenue growth remains strong and RFMD expects the operations to achieve EBITDA breakeven on a full-year basis in 2026. RFMD continues to explore opportunities in new markets within the region.
• Estimates. We lower 2025-2026 earnings by 6% and 7% to account for: i) Higher staff costs on the back of cost inflation, ii) higher contracted services costs as RFMD plans to supplement full-time employees with 20% contract staff, iii) higher depreciation costs on China hospitals, and iv) higher insurance service expenses and net expenses from reinsurance contracts. While this led to a 60-70bps reduction in 2025-2026 net margins from our previous estimates, there is scope for improvement as RFMD is yet to adjust its service pricing higher, although the competition has already done so.
• 2024 results. 2024 core PATMI was 6% below our estimate amidst higher costs (see Figure 1). Key positive takeaways were: i) 2.5 cents of final DPS (2023: 2.4 cents) vs our estimate of 1.81 cents, ii) policy to pay at least 50% of annual earnings as dividends, c) plans to buy back up to 100m shares over two years (5.3% of outstanding shares), iv) insurance reporting a segment PBT of SGD0.14m in 2HFY24 (2H23 loss of SGD5.8m, 1H24 loss of SGD6.5m), and v) 14% YoY and HoH China revenue growth in 2HFY24.
• Valuation basis rolled forward to FY25F. While earnings growth should improve as losses narrow from China operations, we await signs of improved profitability before revisiting our rating. RFMD is trading at cheaper levels on an EV/EBITDA and P/BV basis, but has lower EBITDA margin and ROE relative to ASEAN peers. Our TP includes a 0% ESG premium/discount.

Source: RHB Research - 25 Feb 2025