Raffles Medical's 2H20 PATMI Ahead Expectations; Maintain BUY

• Raffles Medical (SGX:BSL)’s 2H20 PATMI of S$48.6m (+50% y-o-y) was ahead of our and street’s expectations, due to
  1. activities related to the COVID-19 battle, and
  2. government wage support.
• Management expects normalisation of most of Raffles Medical’s operations within FY21, including the return of some foreign patients.
• We raise Raffles Medical's FY21-22E earnings per share forecast by 4-20% to factor in the latest outlook. Correspondingly, our DCF target price increases to S$1.10 (WACC: 9%; LTG: 3%). Maintain BUY.

Aid to COVID-19 Battle Boosts FY20 Revenue

• Raffles Medical's FY20 revenue rose 8.8% to S$568.2m.
  • Healthcare services rose 17.8%, on the back of COVID-19 related activities such as air borders screening, PCR and serology testing and swabbing of foreign workers.
  • Hospital services rose 2.1% as Raffles Medical took on acute patients under the Emergency Care Collaboration (ECC) with the Ministry of Health, as government hospitals focused their battles against COVID-19.
• Raffles Medical now has four vaccination centres, with more to open across Singapore.

Developments in China

• Raffles Medical expects operations to normalise within 2021. Foreign patients are expected to gradually return as vaccination takes place globally.
• Raffles Hospital Shanghai is slated to start receiving patients in 2H21.
• Meanwhile, the clinic in Beijing is now fully upgraded to Raffles Hospital Beijing and can support minimally invasive surgeries.
• According to Raffles Medical, Raffles Hospital Chongqing saw markedly improved volumes y-o-y.

Key Risks

• Raffles Medical's management sounded reassuring on the prospects of patients as well as growth in China.
• In our view, key downside risks are our
  1. underestimation of China hospitals start-up losses; and
  2. overestimation of foreign patient recovery.
• Key upside risk is our underestimation of the resilience of COVID-19 related revenues.

Source: Maybank Kim Eng Research - 22 Feb 2021