Analysts Cite Reduced Pandemic Revenue and Long-term Growth Prospects
Analysts from RHB, DBS Group Research, and OCBC have revised their target prices for Raffles Medical, citing the tapering of COVID-19-related revenue as Singapore transitions to an endemic living strategy.
Revised Target Prices and Market Performance
On Feb. 22, RHB lowered its target price for Raffles Medical to S$1.55 from S$1.65, reflecting a 21.1% potential upside from its trading price of S$1.28 as of 11:11 a.m. that day. Similarly, DBS adjusted its target price to S$1.63 from S$1.81, implying a 27.3% upside. OCBC maintains a fair value estimate of S$1.65, indicating a 28.9% upside. Despite the adjustments, all three analysts continue to rate the stock as a “buy.”
Pandemic Revenue Decline Offset by Elective Procedures
The shift towards endemic management has led to reduced revenue from COVID-19-related services, as Singapore’s Home Recovery Programme becomes the default care system for asymptomatic and mild cases. The government is also scaling back isolation and treatment facilities, such as the Expo COVID-19 treatment centre operated by Raffles Medical.
On the brighter side, analysts highlight the recovery of elective procedures, increasing medical tourism, and higher foreign patient loads as factors that could offset some of the lost pandemic-related revenue.
Financial Projections Adjusted
Both RHB and DBS revised their earnings estimates for Raffles Medical for FY2022-23. RHB cut its profit forecasts by 5-8%, while DBS lowered its projections by 4-7%. These adjustments reflect reduced contributions from COVID-19 services and a slight delay in the opening of Raffles Hospital Shanghai.
DBS also revised the price-to-earnings multiple for Raffles Medical to 32 times, citing a slower compound annual growth rate (CAGR) for earnings over the next two years.
Long-term Growth Potential
Despite near-term challenges, analysts remain optimistic about the company’s long-term growth. DBS highlighted the potential for stronger earnings once Raffles Hospital Chongqing contributes positively to earnings before interest, taxes, depreciation, and amortisation (EBITDA). This improvement is expected to offset some initial losses from Raffles Hospital Shanghai.
RHB’s Shekhar Jaiswal added, “While near-term earnings growth could remain soft due to high-base effects and cost headwinds, we stay positive on Raffles Medical’s longer-term growth prospects.”
Raffles Medical’s positioning in elective care, international healthcare, and medical tourism is expected to support its growth trajectory beyond the immediate pandemic-related revenue decline.
