Brokers’ take: Analysts raise Raffles Medical targets following ‘exceptional earnings’

ANALYSTS have raised their target prices on Raffles Medical Group after the group’s financial results for the first half ended Jun 30 exceeded expectations.

On Monday (Aug 1), the mainboard-listed healthcare services provider posted a net profit of S$59.7 million for the period, a 51.3 per cent jump compared with S$39.4 million a year ago. This was mainly due to higher revenue on the back of a rebound in medical tourism as Singapore reopened its borders.

The rise in the number of local and foreign patients seeking treatment more than offset the drop in revenue arising from Covid-19-related services, said Raffles Medical executive chairman Loo Choon Yong in an earnings call.

On Tuesday, UOB Kay Hian (UOBKH) upgraded the counter to “buy”, joining research teams from RHB, Maybank and CGS-CIMB which maintained their “add” or “buy” calls.

All research houses also raised their target prices, implying a potential upside of 13.6 to 32 per cent from the counter’s last trading price of S$1.25 as at 4.36 pm on Tuesday. Raffles Medical was trading 4.2 per cent or S$0.05 higher at the time.

They all noted that Raffles Medical’s H1 2022 results had exceeded market expectations, forming around 75-83 per cent of consensus full-year estimates. As such, all analysts have raised their earnings estimates for the FY2022-24 period.

CGS-CIMB raised its earnings per share (EPS) forecasts for FY2022, FY2023 and FY2024 by 43 per cent, 27.5 per cent and 40.5 per cent, while Maybank increased its FY2022-24 EPS estimates by more than 30 per cent.

CGS-CIMB on Monday raised its target price to S$1.50 from S$1.27 following an earnings upgrade and reiterated its “add” call on the stock. Maybank, meanwhile, upped its target price to S$1.57 from S$1.50 and maintained “buy”.

While RHB and UOBKH lifted their earnings projections, both research teams noted that it may be difficult for Raffles Medical to maintain its H1 profit levels. This comes amid higher staff costs, increased operating expenses related to higher patient loads and tapering Covid-19-related revenue.

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Raffles Medical H1 profit climbs 51.3% with comeback in medical tourism

RHB lifted its projections for FY2022 net profit by 29 per cent and FY2023-24 earnings by 3-12 per cent. The research team increased its target price to S$1.65 from S$1.50 and noted that Raffles Medical’s valuation remains compelling as the healthcare services provider is trading below peer average.

UOBKH, meanwhile, raised its target price to S$1.42 from S$1.34 after changing its methodology from a discount-cash-flow valuation to a price-to-earnings (PE) valuation.

“Due to expected record-high earnings in 2022, we have taken a conservative approach and pegged our PE multiple to -1 standard deviation instead of its mean to account for normalisation of earnings in 2023-24,” UOBKH said.