• We expect intensifying global travel restrictions and MOH’s recent advisory to private healthcare sector on foreign patients to impact Raffles Medical (SGX:BSL)’s patient load.
• We cut our FY20-22F EPS by 7.8-12.4% to reflect the loss of medical tourism, and possible macro slowdown.
• Raffles Medical remains a long-term ADD.
• Current price level offers better risk-reward, with continual share buybacks by key stakeholders as near-term Raffles Medical Share Price support.

Latest MOH Advisory Keeps Foreign Visitors at Bay

• Under Ministry of Health’s (MOH) new directive, all doctors in public and private hospitals, as well as private specialist clinics, have been instructed to
  • immediately stop or defer accepting new foreign patients who do not reside in Singapore, and
  • encourage their current foreign patients to seek continued care in their home countries.
• This follows as Singapore closes its borders to all short term visitors effective from 24 Mar 2020 and as many countries implement and intensify travel restrictions.

Cut FY20-22F EPS by 7.8-12.4%

• As the focus of healthcare shifts back to the existing needs of domestic patients, we think such measures will significantly impact the near-term patient footfall for Raffles Medical’s hospital operations in Singapore, which formed 54% of its FY19 revenue and 64% of FY19 PBT.
• As foreign patients contributed to less than 30% of its hospital revenue, we cut our FY20- 22F EPS by 7.8-12.4% to account for the loss of medical tourism, and a possible macro slowdown which could impact healthcare spending on elective procedures.
• On the other hand, healthcare services are relatively more resilient in our view, given Raffles Medical’s extensive network of clinics locally and abroad, and the essential nature of treatment. Our growth assumptions for its China operations remain unchanged (including the Shanghai hospital opening in 2H20F) and in line with management’s guidance.

Follow the Smart Money

• We continue to see Raffles Medical as a long-term beneficiary of accelerated healthcare reforms in China upon returning to normalcy, despite its recent share price de-rating caused by Covid-19 outbreak, from 1 s.d. above historical mean of 35.8x to 22.4x FY21F P/E.
• We note that Raffles Medical’s CEO and directors have collectively completed share buybacks for S$4.5m in Mar 20 (see Raffles Medical Announcements), which could help support near-term share price and be seen as a vote of confidence.

Reiterate ADD

• At current level, we think the risk-reward is favourable with limited downside of 11% (based on 20x FY21F EPS) vs. at least a 25% upside pegged to its long-term average of 28x.
• We reiterate ADD on the stock with a lower SOP-based target price of S$0.98, which now attributes little value to both its hospitals in China.
• Re-rating catalysts are market share gain from Singapore public hospitals and faster ramp-up of its Chongqing hospital.
• Downside risks: prolonged virus situation and slower medical tourism.

Source: CGS-CIMB Research - 25 Mar 2020