Tan and Mo also warn that the stronger Singdollar versus the rupiah will weigh down on the growth of foreign patients, with more than half from Indonesia.
"An increasing number of Raffles Medical's foreign patients have opted for cheaper alternative healthcare in neighbouring countries such as Malaysia and Thailand, specifically for non-critical healthcare," suggest the analysts, who are expecting "muted" levels for 1HFY2025.
"Potential upside may come from implementing price increases in 2025 and realising cost efficiencies at Raffles Hospital Singapore," they add.
Meanwhile, with a ramp-up in the number of patients, Raffles Medical's operations in Chongqing and Shanghai will turn in better contributions, extending a 10.1% y-o-y growth in revenue in FY2024.
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The UOB Kay Hian analysts are expecting "stable" earnings growth for the healthcare services segment, with revenue up 15% y-o-y in 1HFY2025 while operating profit will be up 16% y-o-y in the same period.
Hospital services, another reporting segment, will see slightly higher revenue of 4% y-o-y as well with price increases and stable domestic patient load. However, Tan and Mo expect operating profit to grow by 54% y-o-y thanks to better cost efficiencies, a ramp-up in the group’s Chinese operations and increasing higher-margin domestic elective surgeries.
Meanwhile, Raffles Medical's insurance arm is still seen to suffer from a small 1HFY2025 operating loss of $3 million and continue to be in the red for the next one to two years.
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In summary, Tan and Mo have kept their "buy" call but with a higher target price of $1.18, up from $1.06 earlier, as they have applied a higher PE multiple of 31x from 28x previously.
"Despite the recent rise in share price performance, we still see potential upside at current price levels, underpinned by expected earnings growth and the recently announced share buyback.
"We remain bullish on Raffles Medical's expansion in China/Vietnam, coupled with potential new acquisitions in the medium to long term," say the analysts.
Raffles Medical shares changed hands at $1 as at 2.57 pm, unchanged for the day.
