Excerpts from CGS CIMB report

Raffles Medical Group (SGX: BSL)

• Raffles Medical Group 1H22 revenue/earnings exceeded estimates at 59.3%/55.9% and 81.5%/75.5% of our and consensus’ FY22F estimates.
• We increased our EPS forecasts for FY22-24F by 43.0%/27.5%/40.5% on higher local patient volumes and returning foreign patients.

Reiterate Add with a higher TP of S$1.50, pegged at 16x FY23F EV/EBITDA, 0.5 s.d. below its 5-year mean, with a discount for gestating China assets.

Raffles Medical Singapore operations firing on all cylinders

Raffles Medical Group (RFMD) ’s revenue grew by 11.2% yoy to S$382.3m in 1H22, underpinned by Singapore operations which made up 91.5% of total revenue.

Net of inter-segment sales, healthcare services revenue grew by 22.0% yoy, offsetting the 5.1% decline in hospital services. Healthcare services include outpatient services in GP and specialist clinics, whose visits were noted by management to have surpassed pre-Covid-19 levels.

Ongoing management of joint testing and vaccination centres (JTVCs), and community treatment facilities (CTFs) also contribute to the segment.

The decline in hospital services revenue was a result of lower Covid-19 testing services, although the impact was partially offset by returning
foreign patients, which reached 60% of pre-Covid levels.

EBITDA margin expanded on operating leverage

RFMD’s EBITDA margin expanded by 6.7% pts yoy, as revenue growth outpaced staff costs (+7.2% yoy) and a decline in inventories and consumables expenses by 23.0% yoy due to lower contribution from Covid-19 testing.

Management shared that the margin expansion was a result of better staffing allocation instead of cost pass-through, and it believes margins can be maintained moving forward without price adjustments, assuming revenue momentum sustains and inflationary pressures ease.

Not holding back in China

RFMD’s hospitals in China continued operations throughout 1H22, although sporadic lockdowns across cities have resulted in staffing constraints.

Despite losses for its Chongqing and Shanghai hospitals, RFMD continues to establish its reputation in China, assisting the government in community vaccination programmes and Covid-19 testing operations.

In addition, RFMD has received approval to set up an In-Vitro Fertilisation (IVF)/Assisted Reproductive Therapy (ART) centre at Le Cheng, Hainan, which could help RFMD to further establish its OBGYN specialty in China.

Valuation/Recommendation

Reiterate Add with a higher TP of S$1.50 on earnings upgrade The exceptional earnings despite expectations of tapering Covid-19-related contributions were a result of stronger local demand for healthcare and recovering contributions from foreign patients, in line with the pace of border reopening.

New businesses could also arise from management of Covid-19-related facilities that are re-purposed for non-Covid usage. China assets in the gestation period reaching breakeven earlier than expected.

You can find the full report here and the company website here.