Brokers' take: Analysts raise target prices for Raffles Medical amid outperformance

ANALYSTS are raising their target prices for Raffles Medical Group BSL, after the healthcare services provider beat consensus estimates to post a stellar set of H1 results on the back of a protracted recovery from the Covid-19 pandemic.

The group on Monday announced net profit of S$39.4 million for the first half, more than double the S$17.2 million in the year-ago period, as revenue grew 42.4 per cent to S$343.8 million.

Riding on its support of the government's Covid-19 vaccination and polymerase chain reaction (PCR) swab tests initiatives, revenue from the healthcare and hospital services divisions climbed 65.4 per cent and 35.4 per cent respectively.

Buoyed by the positive earnings results, the counter surged 9.1 per cent to close at a four-year high of S$1.32 on Monday.

"Raffles Medical, as the largest Covid-19 service provider, is the biggest beneficiary of more routine tests and the accelerated vaccination programme, which could last longer than expected," said DBS analyst Rachel Tan in a research report on Tuesday.

DBS is keeping its "buy" call on Raffles Medical and raising its target price to S$1.48, from S$1.40 previously.

The analyst added that the group's earnings for FY2021 and FY2022 could surprise on the upside due to contribution from Covid-19-related services.

"We continue to believe that the key catalysts will be led by expanded Covid-19-related services and the reopening of travel borders, which could drive earnings growth, surpassing pre-Covid earnings levels and offsetting gestation losses from new hospitals in China in the next two years," Ms Tan said.

Likewise, RHB analyst Shekhar Jaiswal is staying bullish on Raffles Medical's growth prospects, and forecasts that the group's FY2022 earnings could exceed pre-pandemic levels.

"While the accelerated vaccination programme in Singapore should ease in H2 2021, the continued Covid-19 testing, as the country relaxes restrictions and looks to reopen borders, gradual return of patient load in Singapore, and growth in revenue from China operations should drive earnings growth," the analyst said.

"We raise 2021-2023 earnings (estimates) by 6-11 per cent and expect a 27 per cent profit compound annual growth rate (CAGR) during 2020-2023," he added.

RHB is maintaining its "buy" recommendation on the group, and raising its target price to S$1.45, from S$1.35 previously.

Meanwhile, CGS-CIMB has also lifted its target price - by S$0.04 to S$1.44 - but has downgraded its recommendation on Raffles Medical to "hold", from "add" previously.

The downgrade comes as shares of Raffle Medical have climbed 31.3 per cent year-to-date.

"We believe the market has started pricing in higher earnings per share (EPS) and further growth will be contingent on improved China operations," analyst Tay Wee Kuang said in a report on Monday.

The way the analyst sees it, the two hospitals in China are only expected to turn in positive EBITDA (Earnings before interest, taxes, depreciation, and amortisation) contribution in FY2024.

"In FY2021, EBITDA losses are expected to amount to S$8-10 million for the Shanghai hospital and S$5-6 million for the Chongqing hospital, currently in its third year of operations, as Covid-19 pushed back the breakeven period by one year," he added.

As at 3.34pm on Tuesday, Raffles Medical shares were trading 1.5 per cent or S$0.02 lower at S$1.30.


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