Brokers’ take: RHB lowers Raffles Medical target on slow China growth but maintains ‘buy’ rating

RHB has lowered its target price for Raffles Medical : BSL 0% to S$1.50 from S$1.55, even as it maintains its “buy” rating on the healthcare group.

While China’s Covid-19 cases and lockdowns have eased, the country’s zero-Covid policy and fresh announcements of mass-testing drives could delay the ramping up of Raffles Medical’s China operations, said RHB analyst Shekhar Jaiswal in a report on Monday (Jun 20).

RHB had previously expected the medical group’s Shanghai hospital, which commenced operations in 2021, to see meaningful revenue this year. The Chongqing hospital and Shanghai hospital were also expected to achieve Ebitda (earnings before interest, taxes, depreciation and amortisation) breakeven by end-2022 and 2024 respectively in previous estimates.

Despite the expected slowdown in Raffles Medical’s China growth, RHB remains optimistic on the healthcare group. It has lowered near-term profit estimates as 2022 functions as a “transition year”, but remains positive on long-term outlook.

Jaiswal maintained that Raffles Medical’s Singapore operations are on the way up, with the return of medical tourists from Indonesia, Cambodia and Vietnam.

While current numbers of foreign patient arrivals are hard to come by, he said, news reports suggest that medical tourists have begun to return since Singapore eased Covid restrictions, added flights and removed the need for special clearance for medical treatment on Apr 1 this year.

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The return of medical tourism, together with normalised business operations in its Singapore healthcare clinics, is expected to partially offset declines in the group’s Covid-19 related revenue.

RHB projects that the healthcare group’s Singapore operations will see growth in 2023 and beyond. “After a weak share price performance, valuations are looking compelling as well,” Jaiswal said.

Shares of Raffles Medical closed S$0.01 or 0.9 per cent lower at S$1.11 on Monday.