Meanwhile, Jaiswal, who has kept his "buy" call and $1.30 target price, notes that Raffles Medical trades at a discount to its ASEAN healthcare peers despite strong earnings visibility.
Besides home market Singapore, Raffles Medical has bet big on China, which now accounts for 31% of its non-current assets but contributes just 9% of the total revenue, underscoring that asset productivity can be improved.
Jaiswal points out that its Beijing hospital is already profitable, while Shanghai and Chongqing remain in the ramp-up phase.
Raffles Medical, according to the analyst, has expanded its addressable market beyond expatriates to also China's affluent domestic population, which is the top 30% of consumers seeking premium healthcare.
See also: CLSA starts Food Empire at ‘outperform’ with $3.60 target price
"With a target for at least one China hospital to achieve ebitda breakeven by the end 2026, 1HFY2026 results should provide a key read-through on revenue growth and narrowing operating losses," says Jaiswal.
Here in Singapore, the healthcare industry is seeing some changes from reforms made to the insurance system with effect from April 1, forming what Jaiswal calls "an overlooked earnings catalyst".
"We believe the market underestimates the earnings upside from the Ministry of Health's Integrated Shield Plan rider reforms for Raffles Health Insurance," says Jaiswal.
See also: KGI's Chong starts China Sunsine at 'outperform' with $1.145 price target
As it is, losses have already narrowed materially through stronger claims discipline, with the business approaching breakeven in 2HFY2025.
Jaiswal believes that the reforms should structurally improve industry claims ratios via higher patient co-payments while broadening insurance affordability, and supporting premium growth and operating leverage.
Broadly, the new policies are to help curb the steep jumps in premiums, but also impose a higher proportion of out-of-pocket costs for patients, and could thereby temper private hospital demand.
However, Jaiswal believes there will be limited impact on Raffles Medical’s Singapore hospital operations given its extensive insurer panel, demand driven by genuine medical needs, and transitional grandfathering provisions, under which existing riders remain unaffected until policy renewals after Apr 1 2028.
"This should allow any demand adjustment to occur gradually, while RFMD could also gain panel share as insurers increasingly favour cost-efficient providers," he adds.
Meanwhile, Raffles Medical can choose to flex its balance sheet, with options ranging from overseas acquisitions, further share buybacks and maintaining dividend payouts.
"The debate is not financial capacity but capital allocation discipline. Investors may favour buybacks and dividends unless it can demonstrate that regional expansion, including potential opportunities in Vietnam, is earnings-accretive and avoids the prolonged gestation seen in China," says Jaiswal.
Raffles Medical shares traded at 93 cents as at 10.01 am, up 0.54%.
