Raffles Medical's 1H21 Beat on Strong COVID-19 Contributions

• Raffles Medical Group (SGX:BSL)'s 1H21 PATMI surged 128.7% y-o-y to S$39.4m, and was ahead of our and consensus’ expectations. The beat was driven by strength in COVID-19 related services.
• We raise our FY21-23E earnings forecast for Raffles Medical by 11-20% as we factor in
  1. more resilient than expected COVID-19 related revenue and
  2. normalisation of local patient visits.
• We roll forward to FY22E, and our DCF-based target price for Raffles Medical rises to S$1.58 (LTG: 3%, COE: 8%). We see the pace of foreign patient recovery as a key swing factor in our forecasts. Maintain BUY rating on Raffles Medical.

Continued Beneficiary of COVID-19 Services

• Raffles Medical's 1H21 revenue rose 42.4% y-o-y, driven by 65.4%/35.4% increase in healthcare / hospital divisions respectively. In turn, these were driven by
  • vaccinations (Raffles Medical has 17 sites);
  • COVID-19 tests (including for new clusters);
  • subsidised patients under a collaboration scheme with the Ministry of Health.
• EBITDA margin was government grants and job support scheme related income.

Opening of Raffles Hospital Shanghai

• Raffles Hospital Shanghai (400-bed) will begin operations guidance. Raffles Hospital Chongqing and Beijing continue to see normalisation of patient volumes.

Upside and Downside Factors for Raffles Medical's Share Price

• We believe the key upside factor to Raffles Medical's earnings is a speedier than expected reopening as inoculation rates in Singapore rise. This is because this may pave way to
  1. return of local patients (e.g. elective surgeries),
  2. resilient than expected COVID-19 revenue (75% of Singapore COVID-19 cases in late-Jun to late-Jul were vaccinated individuals) and
  3. the gradual return of foreign patients.
• On the other hand, we believe key downside risk is if we have overestimated the resilience of COVID-19 related revenues.

Source: Maybank Kim Eng Research - 26 Jul 2021