Brokers’ take: CGS-CIMB ups target price on Raffles Medical Group amid Covid-19 surge

CGS-CIMB has raised its target price for Raffle Medical Group as it expects the company to play a significant role in supporting the government’s public health efforts, in light of the recent surge in Covid-19 cases.

In a report released on Monday (24 Oct), analyst Tay Wee Kuang maintained an “add” rating on the counter at a higher target price of S$1.60, up from S$1.50. 

The new target price is pegged at 15 times EV/Ebitda (enterprise value/earnings) upon rolling forward the valuation to FY2024. It represents half a standard deviation point below stock’s five-year historical average to reflect a lower trading band over the past two years.

Raffles Medical currently operates Joint Testing and Vaccination Centres (JTVCs) and Connect@Changi, a Community Care Facility (CCF).

Citing data from the Ministry of Health (MOH), Tay said it is through these facilities that Raffles Medical will continue to be “involved in Singapore’s efforts to manage the Covid-19 pandemic”. He noted that this is especially given the recent surge in cases which have in turn led to crowds in public hospital emergency departments in recents months. 

“We believe that the recent increase in Covid-19 cases suggests that more patients will be transferred to CCFs, such as Connect@Changi. Raffles Medical will also be extending its JTVC operations by 15 months after being awarded the latest government tender, suggesting vaccination services are likely to continue,” said Tay.

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The research house has also increased its revenue projections for Raffles Medical’s earnings in FY2022-FY2024 by 2 per cent to account for higher expected contributions from Covid-19-related services.

“We also wish to highlight that Raffles Medical noted during H1 2022 that patients at its outpatient clinics have surpassed pre-Covid-19 levels despite lower outpatient specialist visits reported by MOH, suggesting an increase in market share,” said Tay.