Jaiswal continues: “We met with investors in Kuala Lumpur to discuss the Asean healthcare outlook. Investors were more keen on Thailand and Indonesia healthcare stocks, and still had concerns on Singapore’s private healthcare sector and Raffles Medical.”
Although Raffles Medical looks to see earnings improvement on the back of the group’s improving China business, higher operating costs in Singapore, below pre-pandemic levels of foreign patients, and losses from higher claims in its insurance business continue to provide “near-term earnings headwinds”.
Jaiswal also anticipates wage pressure as the group intends to expand its operations by hiring more doctors, specialists, and nurses, a process made even more difficult by Singapore’s private healthcare sector already “struggling with the shortage” of skilled nursing staff amidst elevated competition from other developed economies, and from its public healthcare players.
He adds: “The international patient load may not recover to pre-pandemic levels and could remain weak in the foreseeable future, amidst a relatively strong Singapore dollar and competition from regional healthcare businesses.”
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The analyst estimates a 13% profit growth in FY2024, a reverse from the decline in profit in FY2023, which he attributes to the addition of 176 beds dedicated to Raffles Medical’s transitional care facilities (TCF) programme.
Jaiswal writes: “This, we believe, will not only help improve its healthcare business revenue but could also boost the margin. We expect lower losses from the China business, and the losses in its insurance business should gradually taper off over the next few quarters.”
In the longer term, the expansion of activities at Raffles Medical’s Chinese hospitals look to bolster the group’s revenue growth.
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The group has also announced plans to acquire a majority interest in the American International Hospital (AIH) in Ho Chi Minh City, Vietnam, and it will also enter into a management service agreement to manage the hospital.
On this, Jaiswal writes: “We believe that the revenue contribution will only happen in late FY2024 as the contract is contingent upon the fulfilment of specific condition precedents and necessary regulatory clearances.”
Key drivers noted by him include a faster-than-expected ramp-up of Raffles Medical’s new specialist centre, a better-than-expected ramp-up of the new hospitals in China, and lastly, a recovery in foreign patient load.
Conversely, key risks include delays in both the opening of Raffles Shanghai hospital and in earnings before interests, taxes, depreciation and amortisation (ebitda) breakeven timelines guided for China operations.
As at 11.10 am, shares in Raffles Medical are trading 1.5 cents lower or 1.51% down at 98 cents.
