August 2, 2022

Recovery of elective procedures and the return of medical tourism in “new normal”.

Raffles Medical stands to benefit from the recovery of elective procedures and the return of medical tourism in Singapore in the “new normal”, to offset some tapering of COVID-19-related services.

Raffles Medical adapts and changes to support the government’s COVID-19 initiatives. 

Raffles Medical, as the largest COVID-19 service provider, will continue to support the government’s COVID-19 initiatives in the community or at Changi Airport.

FY22F-FY23F earnings may stay elevated despite gestation losses. 

Given the company’s record-high FY21 results, we expect earnings to stay elevated, despite China hospitals’ gestation losses, with some pent-up demand coming in from postponed elective procedures and foreign patients.


We raised our TP to S$1.64 from S$1.63 previously, based on a sum-of-the-parts model. We applied the historical -0.5SD PE (from 2012) of 26x to FY22F earnings, plus S$0.20 per share for its hospitals in China.

Street-high target price. We remain the most positive among the consensus with a street-high target price. Our FY21F-FY23F earnings estimates are one of the highest vs. the consensus, as we expect earnings to stay elevated, given the recovery of elective procedures and the return of medical tourism, while we await positive contributions from Raffles Hospital Chongqing and the rebound post the China lockdowns.

Key Risks to Our View: 

New variants of COVID-19 slowing down recovery. New waves of the COVID-19 pandemic could slow the recovery of private healthcare demand. 

Higher-than-expected gestation losses for longer periods of time from hospitals in China may drag earnings growth.


Record-high 1H22 results despite tapering off of contributions from COVID-19-related services following the return of foreign patients

• Raffles Medical’s 1H22 PATMI grew 51% y-o-y (+34% h-o-h) to S$60m, above our estimates, recording one of its best half-yearly results. Despite the tapering off of contributions from COVID-19-related services, the record-high results were led by the return of volumes of both local and foreign patients.

• 1H22 revenue grew 11% y-o-y to S$382m, led by growth in healthcare services (+24.1% y-o-y) but hospitals services fell 11.4% y-o-y due to lower PCR diagnostic tests carried out.

• More importantly, we note that healthcare services have doubled to that of pre-COVID (1H19 revenue), while hospital services are back to pre-COVID levels.

• Similar trends observed in 1H22 EBTIDA, which was +43.5% y-o-y to S$107m.

• 1H21 EBITDA margins expanded to 28%, the highest EBITDA margins achieved.

• 1H21 revenue from Singapore and Greater China grew 11% y-o-y and 5% y-o-y, respectively, while the rest of Asia grew 22% y-o-y.


• Steady return of foreign patients achieving 60% of pre-COVID level; expect to hit pre-COVID levels by year-end. From May-June 2022, post travel borders reopening in Apr 22, Raffles Medical has seen a steady return of foreign patients. Management believes that foreign patient volumes are at c.60% of pre-COVID levels and hopes to see a full return by year-end, especially when China’s travel borders reopen.

• Elective procedures by local patients have returned. Raffles Medical has also seen a return of elective procedures by local patients post further relaxations in Singapore.

• Singapore outpatient volumes have surpassed that of pre-COVID levels.

• Management believes that the strong margins could be sustainable, despite not having to raise prices. Management has been managing its cost and improving operating efficiency to drive margins.

• Expected gestation losses for FY22F in line with guidance. While China hospitals were impacted by the lockdowns, management saw patient volume in Chongqing doubling despite the lockdown. Barring further lockdowns, management believes that the hospital operations would progressively return to normalcy. The expected gestation losses are in line with the previous guidance of S$10m for year 1 of operations (Raffles Hospital Shanghai), S$3-S$5m for year 2 of operations (Raffles Hospital Chongqing), and breakeven in year 3.

• We believe the new IVF/Assisted Reproductive Therapy centre at Le Cheng, Hainan has great potential in the long term. Management explained that Le Cheng in Hainan is a dedicated healthcare hub set aside by the Chinese Government. Given that this is a specialised healthcare hub, the Chinese Government could allow the usage of medication that may not be accessible in the rest of China. As such, management sees the potential to eventually expand it into a cancer specialised centre in Le Cheng that could allow patients access to drugs that would previously not be accessible. The capex for the IVF centre is minimal (c.S$10m), as Raffles Medical will be renting a floor from the specialised healthcare hub.

Maintain BUY; TP of S$1.64. We maintain our BUY rating and raised our TP marginally to S$1.64 from S$1.63 previously. We raised our FY22F-FY23F earnings by 24% to 25% given the strong 1H22 results achieved. Given the strong earnings delivered, we lower our PE multiple to 26x, -0.5 standard deviation of historical range, from 32x previously, +0.5 standard deviation. Raffles Medical is currently trading at very attractive valuations at 21x FY22F PE, below -1 standard deviation of its historical range.

BUY by DBS Group Research.  Share price closed at S$1.25