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Brokers' take: Analysts downgrade Raffles Medical on foggy prospects of foreign patient load recovery

ANALYSTS from Maybank Kim Eng and CGS-CIMB have downgraded their calls on Raffles Medical Group, citing insufficient upside.

This comes amid limited visibility on the return of foreign patients, even though local patient volumes have recovered, several analysts noted. Foreign patient load accounts for some 25 per cent to 30 per cent of hospital services revenue, they said.

CGS-CIMB downgraded the integrated healthcare provider to "hold" from "add" on limited upside, with a lowered target price of 96 Singapore cents from 97.6 cents previously. The upside risk is a faster lifting of travel restrictions. 

"We think the improving local patient volume has been priced in, but with limited visibility on the return of foreign patients," said CGS-CIMB analyst Ngoh Yi Sin.

The research house cut its FY2020-22 forecast earnings per share for Raffles Medical by 6.6 per cent to 13.4 per cent to reflect the ongoing headwinds facing medical tourism and the delay in the Shanghai hospital's opening.

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Ms Ngoh expects gradual earnings improvement in subsequent quarters as local patient loads have recovered to pre-Covid-19 levels, along with the fourth quarter being seasonally strong.

Meanwhile, Maybank Kim Eng downgraded its call from "buy" to "hold" with an unchanged discounted cash flow-based target price of S$0.99 due to "insufficient upside".

The key swing factor for the group's recovery profile is how quickly foreign patient revenue can be regained, according to Maybank Kim Eng analyst Lai Gene Lih.

Other upside swing factors include a faster-than-expected breakeven of new China hospitals, stronger-than-expected domestic patient load from market share gains, and more, the report said. 

In addition, Maybank Kim Eng has trimmed its FY2020-22 estimated earnings per share by 4 per cent to 5 per cent.

OCBC Investment Research has issued a "hold" call on Raffles Medical, with a reduced fair value of S$0.96, reflecting a more modest recovery outlook. Previously, OCBC issued a "buy" on the group.

Echoing the sentiment on recovery being dependent on the return of foreign patients, other analysts from DBS Group Research and RHB have maintained their calls with lowered target prices on the stock.

DBS maintained its "hold" call, with a lowered target price of S$0.95 from S$0.96 previously. This comes as the research team revised its FY2020 forecast estimate further by 19 per cent, given the delayed recovery of Raffles Medical's China healthcare division in Q2 and medical tourism as borders remain closed.

RHB, meanwhile, maintained a "neutral" call, with a lowered discounted cash flow-derived target price of S$0.91.

While Raffles Medical saw a resumption in local patient load in June and July, RHB does not expect foreign patient load to recover to pre-Covid-19 levels in the near term, based on the current pandemic situation, said RHB analyst Juliana Cai.

Shares of Raffles Medical were flat at S$0.92 as at 1.05pm on Tuesday.

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