Raffles Medical Group Ltd (SGX: BSL) has faced headwinds but shows signs of resilience and potential for growth. Retail investors might find the company’s prospects appealing, especially with anticipated improvements in the second half of 2024 (2H 2024).
Key Insights
1. Stable Sales Despite Profit Decline
The group’s net profit dropped 48.8% year-on-year (YoY) to S$30.6 million in 1H 2024, primarily due to the discontinuation of Covid-19-related activities by the end of 1H 2023. However, revenue declined only by 1.4% YoY to S$365.7 million, indicating stable overall sales and income. Compared to 2H 2023, revenue increased by 8.8% and net profit grew by 1.1%, signaling recovery as Covid-19-related services phased out.
2. Segment Performance Highlights
- Healthcare Segment – The healthcare services segment, which includes medical clinics and general medical services, experienced a 15.5% YoY revenue reduction. However, profit before tax surged 273.9% from S$7.4 million in 2H 2023, bolstered by a 23.2% half-on-half (HoH) revenue growth, supported by new clinics in Singapore.
- Hospital Segment Growth – The hospital services segment, providing specialized medical services, reported a 4.5% YoY revenue growth and a 65% YoY profit increase, benefiting from improved operating leverage.
- Insurance Services Segment – This segment saw a 29% revenue growth but registered a higher operating loss of S$6.4 million compared to S$1.3 million last year, due to higher claims. The adoption of the Singapore Financial Reporting Standards (International) in FY2023 led to higher initial costs, though these losses are on paper due to accounting changes and do not involve actual cash.
3. Seasonally Stronger 2H 2024 Expected
Since FY2022, the group has seen a seasonally stronger second half. This trend is expected to support growth in 2H 2024.
Raffles Medical Group’s Hospital Services Segment
Source: CGSI Research, Raffles Medical’s Reports
4. China Operations Showing Promise
Revenue for the China region grew 5.9% to S$30.5 million in 1H 2024. Although hospitals in Shanghai and Chongqing, operational since 2022 and 2019 respectively, are still in the developmental phase and incurring losses, management expects the China business to reach a balance between earnings and expenses by the fiscal year 2025.
Conclusion
Our research team maintains an ‘add’ call on Raffles Medical with a revised lower target price of S$1.15, given the group’s steady improvement and potential catalysts like narrowing losses from its gestating hospitals in China. Retail investors might find this an attractive entry point, given the expected improvements in 2H 2024.
However, there are risks, such as higher-than-expected losses in the insurance business and potential deterioration of medical tourism in Singapore. Additionally, a stronger Singapore Dollar may dampen demand for high-end healthcare services, and inflationary pressures could compress margins.
Disclaimer: ProsperUs Manager of Content Hailey Chung doesn’t own shares of any mentioned companies.
References
CGSI Company Note – Raffles Medical Group | July 30, 2024
Raffles Medical Group’s 1H2024 Results
