ANALYSTS have cut their earnings estimates for Raffles Medical after the company released lower-than-expected earnings for the first half ended Jun 30.
RHB lowered its target price to S$1 from S$1.06. It had cut FY2024 to FY2026 earnings estimates by 11 to 13 per cent.
Maybank Securities also trimmed its target to S$1.10 from S$1.15. Analyst Eric Ong reduced his FY2024 to FY2025 earnings per share forecasts by 7 to 9 per cent.
Meanwhile, DBS Group Research maintained its target price of S$0.97, but shaved its estimates for FY2024 earnings by 8 per cent and FY2025 by 3 per cent.
On Monday (Jul 29), Raffles Medical posted a 48.8 per cent decline in net profit to S$30.6 million for the first half, mainly due to the cessation of Covid-19 activities and government grants, as well as higher insurance service costs.
RHB analyst Shekhar Jaiswal said while longer-term growth remains driven by the group’s overseas operations, he expects limited re-rating catalysts in the near term.
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“Instead, we note potential earnings headwinds from higher operating costs, lower numbers of foreign patients, and sustained losses in its insurance business,” he said in a report on Tuesday.
Similarly, Maybank’s Ong believes that growth in Raffles Medical’s insurance unit remains challenging, given industry trends of higher claims and loss ratio.
That said, both Ong and Jaiswal remain positive on the group’s hospital services. Both brokerages kept their “hold” and “neutral” calls on the counter.
Highlighting that the segment is Raffles Medical’s “only bright spot”, Ong believes rising demand from local and foreign patients could offset declines in earnings per share.
“Balance sheet is strong with a net cash position, which enables the group to maintain its core payout ratio of 50 per cent,” he added, noting that capital expenditures may decrease after its Shanghai hospital is developed.
Jaiswal also projects higher revenue in the segment, led by Chinese hospital operations. He expects their earnings before interest, tax, depreciation and amortisation to break even by end 2025 at the earliest.
While DBS analysts Amanda Tan and Andy Sim said China hospitals are a “promising growth engine”, they remain cautious about losses incurred during their development and launch phases.
“China’s slowing economic growth and the stronger Singapore dollar may also dampen the demand for high-end healthcare services, while margins may face some compression due to inflationary pressures,” they said.
However, the analysts also expect full-year earnings to normalise in the current fiscal year. “This could cap the share price’s upward momentum,” they added.
They are also sanguine on Raffles Medical’s long-term outlook due to the industry’s long-term positive trajectory. As a result, DBS analysts also maintained their “hold” call on the stock.
Shares of Raffles Medical were trading down 3.5 per cent or S$0.035 at S$0.965 as at 11.56 am on Tuesday.
