While the results may have missed some analysts expectations, they have overall remained quite positive on the stock, as they expect the group’s China business to see growth. During the first half period, the China business saw a marginal revenue increment from CNY162.9 million ($30.5 million) to CNY163.6 million. Cost-saving measures that were put in place earlier have proven effective in helping to reduce initial losses.
UOB Kay Hian, DBS Group Research, Maybank Research Singapore and CGS International have kept their “buy” calls on RMG.
UOB Kay Hian and DBS are the most positives as they raised target prices to $1.25 (from $1.18) and $1.32 (from $1.12), respectively.
The way UOB Kay Hian analysts Roy Chen and Heidi Mo see it, the group’s results were a slight miss, although there were overall revenue and Patmi growth.
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“The lower-than-expected bottom line was due to a few factors, including: muted revenue growth of the healthcare service segment and China hospitals; lower wage credit from the government; and some unfavourable forex translation from the weakened US dollar,” say Chen and Mo, while estimating that RMG’s 1HFY2025 core net profit, excluding one-offs, would have risen 8.8% y-o-y to $32.5 million.
On the outlook, the two analysts are positive across all segments. They expect the growth in the healthcare services segment to moderate driven by healthy underlying demand; hospital operations to see improved margins on better cost discipline; China operations to hopefully breakeven at Ebitda level in 2026; and the insurance services to further pare down losses in 2HFY2025.
“Given the unchanged turnaround expectations for its China hospital operations, RMG’s valuation should remain supported by upbeat market sentiments thanks to the MAS Equity Market Development Programme. As such, we recommend investors stay invested with Raffles Medical,” say Chen and Mo.
As for DBS, analysts Amanda Tan and Andy Sim too sees the China growth story as “worth the long shot”. They expect the improvement in the group’s overall profitability to be driven by lower gestational losses at China and better operating leverage in the insurance business.
Apart from its business growth strategies, the group has also revised its dividend policy to at least 50% of sustainable earnings annually – it paid out 70% last year; and has put in place a share buyback scheme, where it intends to purchase 100 million (or 5.3%) of its shares over the next two years to support share price – it has only bought back about 7.7 million shares at $7.5 million.
Staying healthy
For Maybank and CGS, they have kept their “buy” and “add” calls, while keeping their target prices of $1.13 and $1.20 respectively.
On reiterating his call and target price, Maybank analyst Eric Ong says: “We deem the results broadly within market expectations at about 48% and 46% of our and street’s full year estimates, respectively, given the seasonally stronger second half.”
While unexciting in the near-term, Ong continue to like the stock’s defensiveness, embedded with an option on its China exposure.
Looking ahead, the group will focus on improving operating margins by optimising resource utilisation, streamlining care delivery processes and driving specialty-driven services across its facilities.
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Backed by its strong balance sheet and net cash position of $283 million, the group also said it will consider to pay interim dividends in the future to further optimise its capital management.
CGS too shares similar sentiments. Analyst Tay Wee Kuang says, “We reiterate our ‘add’ call with our forecasts intact as we believe RMG will see y-o-y and h-o-h net profit growth, albeit modest, in 2HFY2025.”
The way Tay sees it, the soft results in 1HFY2025 was mainly due to losses from the insurance services segment. This was due to the upfront recognition of expected losses of new insurance contracts signed in 1HFY2025 as insurance services had grown 9.8% y-o-y and translated to a 4.2%/57.1% y-o-y increase in insurance service expenses/net reinsurance expenses, which he believes the group could write-back in 2HFY2025 if expected losses do not manifest.
Meanwhile, he is upbeat on the group’s partnership and collaboration efforts with local hospitals in China that supports reputation building. “Management said these collaborations will allow local patients to opt to receive healthcare services in RMG’s gestating hospitals with a visiting doctor from the partnered hospitals, which can help to build its reputation among locals in China and improve its bed utilisation in the country,” says Tay.
Limited near-term catalysts
RHB on the other hand is less bullish on RMG as it has downgraded its call to “neutral” from “buy”, but increased target price to $1.10 from $1.08.
Although 2HFY2025 is expected to be seasonally stronger, the group’s current valuation, which is comparable to regional peers, already reflects mid-teens profit growth, according to analyst Shekhar Jaiswal. He adds: “While ex-cash P/E is attractive, the absence of special dividends or major M&A limits near-term catalysts. Long-term outlook remains positive, supported by steady revenue growth in Singapore and China, and progress towards Ebitda breakeven in China.”
Foreign patient volume in Singapore remained weak due to the strong SGD and rising competition from Malaysia and Thailand. The group will gradually reduce its 176 Transitional Care Facility (TCF) beds at its hospital from 2026 and is exploring alternative uses. “We see the potential to boost hospital earnings from 2026,” says Jaiswal, while adding that staff costs are expected to rise and the group will gradually adjust pricing to counter the cost increase.
Outside of Singapore, China operations remain on track of Ebitda breakeven in FY2026, while Vietnam acquisition is pending government approvals and Indonesia is being explored for expansion. Jaiswal notes that the Johor-Singapore Special Economic Zone presents opportunities for outpatient growth and back-office cost savings.
The group expects insurance losses to decline, supported by a new CEO appointment and the setup of an in-house third-party administrator.
As at 3.10pm, shares in RMG are trading at $1.03, 22.6% up ytd.
