Raffles Medical Group (RMG) recently released its FY2024 ended December 2024 results, which saw earnings decline by 31% y-o-y to $62.2 million, on the back of lower government grants and the absence of the fair value gain of investment properties in 2024.
On a 2HFY2024 basis, earnings gained 4.3% y-o-y to $31.6 million. Excluding fair value gain of investment properties, earnings for 2HFY2024 would have been a 38.0% y-o-y gain.
Compared to FY2023, the group’s revenue increased by 6.3%.
This year, RMG will pay a final dividend of 2.5 cents per ordinary share. Given its strong positive operating cash flow, the group has revised its dividend policy to pay out at least 50% of its sustainable earnings annually.
Additionally, RMG intends to buy back up to 100 million ordinary shares over the next two years.
Analysts have shown positive sentiments towards this latest set of results and capital management actions, with several research houses upgrading their calls and increasing target prices on the counter.
DBS Group Research has upgraded its call on RMG to “buy” from “hold” with a higher target price of $1.12 from 97 cents previously.
Analysts Amanda Tan and Andy Sim are positive on the group’s improvement in profitability that will is driven by lower gestational losses at China and better operating leverage at Raffles Health Insurance (RHI).
Although China hospitals are still expected to remain a drag on earnings, losses are narrowing with the company executing plans to achieve EBITDA breakeven by FY2026. Further, top-line growth in the insurance business, which has a high fixed cost structure, should drive operating leverage and lift margins, barring significant deviations in the claims ratio.
In light of strong operating cashflows, the group has revised its dividend policy and will be buying back about 100 million shares over the next two years, which should continue to lend support to the share price.
Tan and Sim say: “We are excited by the group’s refreshed capital management strategy which we believe sends a clear signal to the market regarding its balance sheet strength (net cash position accounts for about 20% of its market cap) and strong operating cashflows, despite the gestational losses from China.”
Maybank Research has also upgraded its recommendation on RMG to “buy” from “hold” with a higher target price of $1.03 from $1.00 previously. The way analyst Eric Ong sees it, the worst is over for RMG.
“Backed by a strong balance sheet, we are encouraged that RMG is proactively optimising its capital management structure via higher dividend payout and share buy-back,” says Ong.
“We understand the intention of these capital management initiatives is to optimise its capital structure, return excess cash, improve ROE and achieve EPS accretion,” he adds.
Ong also likes that the group’s core healthcare and insurance business has improved in 2HFY2024. Looking ahead, the group will review its offering of medical services to both corporate clients in Singapore and offshore patients. New initiatives may include expanding its telemedicine services, as well as realigning/repositioning existing services to respond to the growing demand for wellness services.
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UOB Kay Hian too is jumping the upgrade bandwagon and now has a “buy” rating on RMG from “hold” and a higher target price of $1.06 from $1.01.
The group’s higher revenue and lower Patmi were in line with analysts Llelleythan Tan’s and Heidi Mo’s expectations. “The healthcare services segment outperformed as patient footfall continued to improve while the hospital services segment posted better margins despite the ongoing headwinds. RMG’s China operations remain on track to break even by 2026.”
In their view, RMG remains attractive at current price levels.
“Given the recent fall in share price performance, we see potential upside at current price levels, underpinned by expected earnings growth and the newly announced share buyback. We remain bullish on RMG’s expansion in China/Vietnam coupled with potential new acquisitions in the medium to long term,” they add.
PhillipCapital too has upgraded RMG to “accumulate” from “neutral” with a higher target price of $1.02 from 96 cents previously.
RMG’s FY2024 revenue and Patmi had exceeded analyst Paul Chew’s expectations, while revenue rebounded from a recovery in elective surgeries and foreign patients in Singapore and a bounce in China volume. Margins expanded as staff costs stabilised and insurance operations broke even in 2HFY2024.
“We raise our FY2025 Patmi by 38% to $71.6 million. The healthcare services from clinics have been surprisingly strong in Singapore,” says Chew, who has no negatives on the stock in his latest report.
“Other growth areas include raising prices and expanding into new countries such as Indonesia, which welcomes investment and allows foreign doctors to practise locally,” he adds.
Meanwhile, RHB is less bullish the rest, as it keeps its “neutral” call on RMG but with a higher target price of 95 cents from 90 cents previously.
Analyst Shekhar Jaiswal sees that RMG continues to explore new growth opportunities in the region amid structural growth headwinds in Singapore. He likes the group’s new dividend policy and share buyback scheme, and views it as positives.
Jaiswal expects the group’s earnings growth to improve as its China operations start to breakeven in 2026. “We expect rerating to materialise only when a China turnaround becomes evident,” says Jaiswal, as he keeps a more conservative stance versus the street.
He notes that RMG is trading at cheaper levels on an EV/EBITDA and P/BV basis, but has lower EBITDA margin and ROE relative to Asean peers.
As at 9.50am, shares in RMG are trading 2.8% higher at 90 cents.
