Brokers' take: Analysts lower targets on Raffles Medical as Singapore goes endemic

ANALYSTS from RHB and DBS Group Research have lowered their target prices on Raffles Medical BSL in view of tapering pandemic-related revenue in the upcoming quarters as Singapore heads towards endemic living.

RHB on Tuesday (Feb 22) reduced its target price to S$1.55 from S$1.65, implying a potential upside of 21.1 per cent from Raffles Medical's trading price of S$1.28 as at 11.11 am on the same day. The group's shares were down 1.5 per cent or S$0.02 at the time.

DBS has cut its target price to S$1.63 from S$1.81, implying a potential upside of 27.3 per cent. Meanwhile, OCBC has a fair value estimate of S$1.65, implying a potential upside of 28.9 per cent.

RHB, DBS and OCBC all have "buy" calls on Raffles Medical.

The increase in normalisation, recovery of elective procedures and the return of medical tourism - hence higher foreign patient load - should help offset some tapering of Covid-19-related services revenue, said analysts from RHB, DBS and OCBC Investment Research.

This comes as the Republic's Home Recovery Programme becomes the default care management for Covid-19 patients as the majority are asymptomatic or have mild symptoms.

"While Raffles Medical continues to operate the Covid-19 treatment facility at Expo for now, the government is looking to slowly close down these isolation and treatment facilities," said RHB analyst Shekhar Jaiswal.

Moreover, the simplification of testing protocols for vaccinated travellers has replaced the expensive polymerase chain reaction (PCR) tests with a cheaper, supervised antigen rapid test. Raffles Medical, which operates exclusive healthcare clinics at Changi Airport, offers PCR testing.

Both RHB and DBS have lowered their earnings estimates for the mainboard-listed healthcare services provider. RHB reduced its FY2022-23 profit estimates by 5-8 per cent, while DBS lowered its forecast for Raffles Medical's FY2022-23 earnings by 4 per cent to 7 per cent.

DBS cut its estimates to factor in the slightly lower Covid-19-related services contribution, as well as the slight delay in the opening of Raffles Hospital Shanghai, it said in a research note on Tuesday. The research team also lowered its price-to-earnings multiple to 32 times, given the slower 2-year compound annual growth rate earnings growth.

Looking forward, DBS noted that stronger earnings growth could return when Raffles Hospital Chongqing starts to contribute positively to earnings before interest, taxes, depreciation and amortisation (Ebitda), which should offset some gestation losses from Raffles Hospital Shanghai.

"While near-term earnings growth could remain soft, on the high-base effect and cost headwinds, we stay positive on its longer-term growth prospects," said RHB's Jaiswal.

READ MORE: Raffles Medical posts 8.1% decline in H2 profit to S$44.7m