ANALYSTS have raised their target prices on private healthcare provider Raffles Medical amid expectations of an earnings recovery, which could be accelerated by a potential turnaround in the group’s China operations.
This comes as Raffles Medical on Monday (Feb 24) posted a 4.3 per cent year-on-year rise in its net profit to S$31.6 million for its second half ended Dec 31. The group also announced its intention to buy back up to 100 million shares, representing 5.3 per cent of its total ordinary issued shares, over the next two years.
Maybank on Monday raised its target price for the counter to S$1.03, from S$1.00 previously, and upgraded its call to “buy” as the “worst is over”.
“Backed by a strong balance sheet, we are encouraged that Raffles Medical is proactively optimising its capital management structure via higher dividend payout and share buyback,” said Maybank analyst Eric Ong.
He added that such capital management initiatives aim to optimise the company’s capital structure, return excess cash, improve return on equity and achieve earnings per share accretion.
Ong noted that the company’s China hospitals are making “decent progress” with growing patient numbers as a result of having tussled some market share from public hospitals due to its marketing efforts.
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“Management now expects its China operations to achieve Ebitda (earnings before interest, taxes, depreciation and amortisation) breakeven in FY2026 as it continues to ramp up its bed utilisation there,” he said.
RHB analyst Shekhar Jaiswal, however, believes a rerating would only “materialise only when a China turnaround becomes evident”.
“While earnings growth should improve as losses narrow from China operations, we await signs of improved profitability before revisiting our rating,” he said.
Meanwhile, the brokerage lowered its earnings estimates for Raffles Medical by 6 per cent for 2025 and 7 per cent for 2026.
This is due to forecasts of higher staff costs on the back of cost inflation, higher contracted services costs, higher depreciation costs on China hospitals, and higher insurance service expenses and net expenses from reinsurance contracts.
RHB is keeping its “neutral” rating for the counter, but lifted its target price to S$0.95 from S$0.90.
CGS International analyst Tay Wee Kuang, however, believes that Raffles Medical’s H2 revenue growth of 14.8 per cent year on year – arising from growth in its insurance segment and China hospitals – bodes well for better profits in FY2025.
“Although H2 FY2024’s net profit of S$31.6 million missed expectations, we note that Raffles Medical recognised one-off impairments of S$2.6 million from its Cambodia clinic and an additional S$1 million on its trade receivables in H2,” he said.
Tay added that the group’s management is positive about a potential turnaround of its China business. “Although no specific details were provided, management said improvements in patient load across its hospitals in China had been the drivers of H2 FY2024’s revenue growth,” he said.
“Its Shanghai hospital is in the process of linking up with Yibao, China’s social insurance plan, which should support incremental revenue growth in FY2025,” he added.
The company’s share buyback programme over the next two years inspires “confidence”, as Tay expects it to lead to a 5.7 per cent accretion in earnings per share on a lower share base.
CGS International reiterated its “add” call for Raffles Medical, and raised its target price to S$1.20 from S$1.15.
