• FY25 revenue and PATMI were within expectations at 96%/97% of our FY25e estimates, respectively. 2H25 adjusted PATMI grew 4% YoY to S$36.4mn. Revenue in China and healthcare services contracted in 2H25. FY25 dividends rose 20% to 3 cents (84% payout).
• Hospital services registered a 9% growth in revenue and profits in 2H25. Driving revenue was a combination of higher prices, insurance channelling more patients and corporate accounts.
• We lower our FY26e PATMI by 8% to S$73mn. Our DCF target price of S$1.02 and NEUTRAL recommendation is maintained. Growth in Singapore is muted due to sluggish patient volumes. Price pressure from insurers and new government hospitals will be another headwind to raising patient bills. Losses in China are expected to narrow gradually. The lack of revenue momentum will cap the ability to scale up for operating leverage.  Raffles Medical continues to generate attractive free cash flows of S$105mn in FY25 with a net cash balance sheet of S$261mn.

The Positive
+ Rebound in hospital services. Hospital services grew 9% in PBT in 2H25 to S$23.4mn.
Several reasons were given for the growth – higher prices, new specialist offerings, insurance
channelling more patients and lumpy corporate accounts.
The Negative - Weaker China. Revenue weakness in China has accelerated with a 6.7% YoY decline in 2H25
(1H25 -1.9%). Attracting doctors will require time. More experienced specialists prefer
government hospitals that allow them to teach and conduct research. Raffles is working with
government teaching hospitals to allow specialists to practise several times a week. The
required scale and regularity are still lacking.

Outlook

We expect Raffles Medical to deliver lacklustre growth. Volumes are expected to be soft due
to reduced foreign patient volumes, new public hospitals, and price pressure from insurers.
China's losses are expected to narrow, but the lack of revenue growth makes achieving the
break-even target harder. Raffles Medical has performed well in controlling expenses,
especially staff cost, and enjoys a strong net cash balance sheet of S$261mn with free cash
flow of S$105mn.

Maintain NEUTRAL with unchanged TP S$1.02

• 1H25 revenue and PATMI were within our expectations at 48%/45% of our FY25e estimates respectively. Revenue growth was softer, largely driven by insurance services.
• We believe patient volumes were weak but supported by higher revenue intensity, especially in oncology and orthopaedics. Turnover in China contracted 2% YoY in 1H25 to S$29.9mn, in part due to a 2.3% weaker renminbi. The turnaround in China is progressing. Collaboration with public hospitals will help raise the number of visiting specialists to Raffles Hospital in China.
• Our FY25e PATMI and DCF target price of S$1.02 is maintained. We downgrade our   ACCUMULATE recommendation to NEUTRAL due to the recent share price performance. Growth in Singapore will be tepid with upside from a turnaround in insurance profitability as loss ratios and claims are tightened.  Cost pressures will rise with a salary increase for public healthcare workers on 1^st July. Raffles is reiterating its dividend policy of at least 50% and share buyback up to 100mn shares over the next 2 years (30Jun25: Treasury shares 33.594mn).

• FY24 revenue and PATMI exceeded our expectations at 116% /127% of our FY24e estimates respectively.  2H24 adj. PATMI jumped 49% YoY to S$34.9mn.
• Revenue rebounded 14% in 2H24 from a recovery in elective surgeries and foreign patients in Singapore and a bounce in China volume. Margins expanded as staff costs stabilised and insurance operations broke even in 2H24.
• We raise our FY25e PATMI by 38% to S$71.6mn. The healthcare services from clinics have been surprisingly strong in Singapore. Our DCF target price is raised to S$1.02 (prev. S$0.96), and the recommendation is raised to ACCUMULATE from NEUTRAL. With the bulk of investments in China completed, the company is raising the dividend payout ratio to at least 50% (prev. up to 50%). It also plans to buy back up to 100mn shares over the next 2 years. The revenue momentum in China could allow it to break even in FY26e.

•  1H24 revenue and PATMI were within expectations at 57% / 52% of our FY24e estimates respectively.  1H24 PATMI declined 49% YoY to S$30.9mn.

•  1H24 EBITDA margins collapsed 9% points YoY to 16.6% from higher losses at the insurance operations, continued losses in China, lower margins from transitional care facilities and lower government grants.

•  We maintain our FY24e PATMI and NEUTRAL recommendation. Our DCF target price of S$0.96 is unchanged. We expect earnings to normalise back to pre-pandemic levels until China hospitals can achieve scale and operating leverage. We believe the Singapore hospital operations are facing multiple competitive pressures. Volumes from domestic patients are under pressure from insurers diverting patients to public hospitals.  Meanwhile, competition for foreign patients face lower priced alternatives in Thailand and Malaysia. The ability to scale up into higher margin complex cases may come under pressure from their largest private competitor with their larger number of specialists.

• 2023 earnings were below expectations at 89% of our estimates. 2H23 adjusted PATMI dropped 77% YoY, excluding fair value gains of S$7.4mn.
• The absence of high-margin pandemic-related services such as vaccination and testing was the major drag on earnings. Other activities pulling down margins were lower revenue per bed from transitional care facilities (TCF) and high loss ratios in their insurance business as patient claims normalised.
• We cut our FY24e PATMI by 30% to S$59.2mn. Our NEUTRAL recommendation is maintained, and the DCF target price is lowered to S$0.96 (prev. S$1.02). We do not expect any recovery in margins in the near term. Price pressure from TCF will linger due to aggressive competition. Weakness in foreign patient volume due to the strong Singapore currency, cheaper alternatives, and improved healthcare services in the region. Containing the decline in earnings will be progressive price increases in Singapore hospitals and narrowing losses in China.

The Positive

+ Growth in China. 2023 is effectively the first full year of operation for their new hospital in China, absent the pandemic interruptions. 2H23 revenue grew 20% YoY. Raffles is gradually gaining traction with foreign corporations operating in China. EBITDA break-even will require 2 to 3 years, but patient load is building momentum as marketing efforts intensify.

The Negative

- Revenue and margin collapse. Absent pandemic-related activities, including testing, vaccination, and even TCF, revenue and margins suffered. The pandemic provided extra services for Raffles and margins were high due to the urgency and limited competition.

• 3Q23 revenue and PAT collapsed 25% and 67% YoY, respectively. Results were below expectations. 9M23 revenue and PATMI were 70%/51% of our FY23 estimates.
• We had expected weaker earnings as pandemic-related revenue ends. But some of the weakness was to be offset by higher prices, foreign patients and TCF. Foreign patients' admissions were softer than expected due to rising costs in Singapore and price increases were moderate.
• We cut our FY23e revenue and profit by 6% and 34%, respectively. We downgrade our recommendation from BUY to NEUTRAL. Our DCF target price is cut to S$1.02 (prev. S$1.76). The next few quarters will be challenging. Earnings are likely to trend back to pre-pandemic levels due to the multiple headwinds including (i) Weaker foreign patient numbers as cost is escalating compared with neighbouring countries; (ii) Softer margins at the transitional care facilities (TCF) due to competition; (iii) Elevated start-up cost in the China hospital; (iv) Higher insurance claims as customer visits normalise.

The Positive

+ Healthy cash flow. The net cash continues to grow at S$239mn (2Q23: S$230mn). Cash continues to pile up after the completion of the hospitals in China. Capex has collapsed from a peak of S$96mn in FY19 to S$25mn last year.

The Negatives

- Revenue is down sharper than expected. We believe the drag in revenue came from lower pandemic-related vaccination and test service at the clinics and centres and softer foreign patient revenue. Revenue at the GP clinics is normalising back to pre-pandemic levels. Foreign patient volumes are below expectations due to the rising cost in Singapore.

- Margins collapsed. Margin weakness was from the loss of high-margin vaccination and testing services. Other expenses such as utilities and staff cost continue to climb. There were only moderate price increases during the period.

• 1H23 revenue and PATMI were within expectation at 49%/42% of our estimates. The jump in healthcare services earnings was higher than expected. PATMI was up a modest 0.5% YoY to S$59mn.
• Revenue for healthcare service was lower due to the absence of COVID-19-related services at the clinics. Hospital revenue is boosted by the return of foreign patients and transitional care facilities. Operating margins remain at record levels of around 21% despite losses in China.
• We maintain our FY23e forecast and BUY recommendation. Our DCF target price of S$1.76 is unchanged. We expect 2H23e earnings will be supported by price increases and a higher volume of foreign patients. However, the reduced contribution of COVID-19 services and lower margins from transitional care facilities (TCF) will place pressure on group margins.

The Positives

+ Resilient hospital services revenue and margins. Hospital services enjoyed growth from increased foreign patients, which are 70-80% of pre-pandemic level. Patients from Vietnam and China have not returned to pre-pandemic levels. Operating margins in 1H23 was 20.7%, higher than pre-pandemic levels of around 16%. The company managed to lower staff costs by S$34mn or 17% YoY by reducing part-time workers. Meanwhile, 1H23 PBT margin is also supported by S$4.6mn improvement in net finance income.

+ Healthy FCF* with lower capex cycle. 1H23 FCF remains strong at S$111mn (1H22: S$117mn), driving up net cash to S$230mn (1H22: S$135mn). Annualised capex is trending towards S$30mn. This compares to S$45mn p.a. over the past three years.

*Free cash flow = Operating cash-flow less Capex less Lease payments

The Negative

+ China is still a drag. Despite revenue growth of 16% YoY in 1H23, China continues to experience operating losses. The losses are estimated at between S$12mn and $14mn. The next few years are the investment phase to build brand awareness of the hospital amongst the locals. We believe locals still prefer government hospitals for their perceived pool of more experienced doctors.

Outlook

We expect 2H23 to be stable supported by the inflow of foreign patients and higher prices. Meanwhile, headwinds will stem from loss of COVID-19 PCR tests and lower margins for TCFs. Insurance will also continue suffering losses as claims rebound with the increase of more insured patients. During the pandemic, patients generally avoided the hospital if the illness was less serious.

• FY22 revenue was within expectation, but PATMI was a massive beat. FY22 revenue and PATMI were 102%/143% of our estimates. The jump in healthcare services earnings was higher than expected.
• The drop in COVID-19-related revenue was offset by higher margin foreign patients, more elective surgeries, increased GP clinic visitations and additional bed capacity in Changi under the Transitional Care Facilities (TCF).
• The re-opening of borders and relaxation of social restrictions triggered the return of medical tourists. There was a wave of other infections raising the volumes at GP clinics and TCFs. We expect the TCF to be operational until public hospital capacity is meaningfully increased. Our BUY recommendation is maintained. FY23e earnings forecast is increased by 50% to S$142mn and our DCF target price raised to S$1.76 (prev. $1.46) with a higher discount rate to 8.0% (prev. 7.6%) as the risk-free rate was lifted.

The Positives

+ Spike in healthcare services earnings. 2H22 PBT for healthcare services more than doubled to S$97.8mn. The jump was due to higher GP visits as re-opening saw a jump in non-COVID infections. In addition, patients with COVID-19 symptoms preferred GP visits rather than hospitals. Increased volumes boosted operating leverage for the business.

+ Return of foreign patients. With borders re-opening, revenue from foreign patients has returned to close to pre-pandemic levels. Such patients have higher revenue intensity and better margins. We expect the return of foreign patients to continue into 1H23. We believe foreign patient revenue has surged back to around 20% of revenue. This is below the estimated 25-30% pre-pandemic.

+ Jump in FCF*. In line with the record earnings, FCF rose 51% to a record S$183mn for FY22. Capital expenditure should normalise to S$30mn-35mn after the major ramp-up of the past 3 years for the new hospitals in China. Net cash has doubled from S$90.7mn to S$180mn. FY22 dividend was increased by 36% to 3.8 cents.

*Free cash flow = Operating cash-flow less Capex less Lease payments

The Negative

+ Losses in China hospitals. EBITDA losses in China were larger than expected due to the lockdown. There was vaccination work, but revenue was low. The decline in foreigners was another negative, especially for the Beijing hospital.  We expect S$10mn EBITDA loss per hospital for Chongqing and Shanghai.

• 1H22 revenue/PATMI beat our estimates at 60%/95% of our FY22e forecast. 1H22 PATMI rose 51% YoY to $60mn. Earnings beat came from the recovery in foreign patients, return of elective treatments and more resilient COVID-19 related revenue.
• Revenue in China rose 5%, driven by Chongqing hospital, while Shanghai was negatively impacted by a two-month lock-down in 1H22. Raffles has also received approval to set up an In-Vitro Fertilisation centre in Hainan, to be operational in 1Q23.
• We raised our FY22e earnings earning by 60% to S$100mn. The uncertainty and lack of visibility in COVID-19-related services will cause the largest swing in our forecast. The major earnings drivers in 2H22 will be foreign patients, elective surgeries from local patients, increased visits at the GP clinics and higher prices. Weakness will come from lower COVID-19 testing and vaccination and fewer patients in COVID-19 treatment facility (CTF). With the increased earnings, our DCF is raised from S$1.27 to S$1.46. We also raised our discount rate to 7.5% from higher risk-free assumptions. Our recommendation is raised from NEUTRAL to BUY.

The Positives

+ Resilient revenue despite less COVID related revenue. Revenue expanded 11% YoY despite the decline in PCR testing services. Growth in 1H22 was driven by (i) higher foreign patients, now 60% of pre-pandemic levels; (ii) return of elective treatments especially from elderly patients that had avoided hospitals during the pandemic; (iii) more GP clinic visits from more unmasked events and greater brand awareness. The number of GP visits exceeds pre-pandemic levels; (iv) COVID-19 related revenue was resilient with vaccinations still underway and higher patient load at the CTFs.

+ Surge in operating margins. Operating margins surged 6% bps to 22.6%. Staff cost rose a slower 7% YoY and purchasing cost was down 23%. We believe the margin pick-up was due to higher revenue intensity from foreign patients.

+ Growth in China despite lockdown. Revenue in China rose 5% supported by Chongqing hospital volumes. Raffles hospitals in China are gaining more recognition, especially from the targeted upper middle income households. The Shanghai hospital was opened but lockdown affected the flow of patients and staff availability.

+ Surge in operating cash flow. 1H22 free cash flow jumped S$80mn YoY to S123mn, due to higher profits, a decline in receivables and lower CAPEX. Net cash improved by S$100mn YoY to S$134mn as of June 2022.

The Negative

- Nil.

Outlook

We expect 2H22 revenue to be resilient, supported by foreign patient admissions, return of elective treatments, price increases and increased visits to GP clinics. The revenue drag will come from lower COVID-19 related services such as vaccination, testing and CTF. We believe losses in China will persist as Shanghai operations ramp up capacity and cost.

Upgrade to BUY with a higher TP of S$1.46 (prev. S$1.27)

We raised our FY22e earnings by 60%, with an 18% increase in revenue and a 5% point increase in margins.  Our WACC was also nudged up by 0.4% points to 7.5% to account for the higher risk-free rate.

• FY21 revenue/PATMI beat our estimates at 104%/111% of our forecast. Earnings beat from higher-than-expected COVID-19-related services and government grants.
• FY21 dividend of 2.8 cents is a 12% improvement from a year ago.
• We expect FY22e to be a weaker year for the company. COVID-19-related services are expected to decline, full-year losses from RafflesHospitalShanghai and a slower recovery in foreign patients. Foreign patient volume may be softer than pre-pandemic levels due to regional competition and substitution with local healthcare. Our DCF is lowered from S$1.35 to S$1.27. We raised our discount rate from higher risk-free assumptions and cut FY22e earnings by 8%. Our NEUTRAL recommendation is maintained. There will be some downtime in earnings until volume from foreign patients recovers and hospitals in China achieve scale and profitability.

The Positives

+ Pandemic services driving growth. 2H21 revenue jumped 54% YoY. Driving growth were COVID-19-related services such as vaccinations, PCR swab tests and management of community treatment facilities. Contribution from COVID-19 services was not disclosed. However, peer hospitals' contribution from COVID-19-related services is around 20%. Another revenue driver was China, up 33%, but contribution was only 7% of 2H21 revenue.

+ Record cash flows. Free cash flow generated during the year was a record S$110mn (FY20: +S$74.3mn). Net cash improved to S$91mn from S$32mn a year ago. A dividend of 2.8 cents is a 60% payout ratio or S$50mn cash outlay.

The Negative

- Rising staff cost. Staff cost jumped 32% YoY in 2H21 to S$204mn. Staff cost as a percentage of sales in FY21 is around 53.5%. This compares with the pre-pandemic level of 51%. We expect staff costs to remain elevated due to labour shortage and tougher operating conditions. Other cost pressures are from personal protective equipment (such as masks, gowns, etc). The impact of rising electricity costs is less significant. There is a need to raise prices by 3-5% to offset some of these higher costs.

Outlook

We expect earnings to be weaker in FY22e:

• COVID-19-related services will decline from reduced PCR swab tests and fewer vaccination programmes;
• Recovery in foreign patient volumes will be slower despite borders re-opening. Foreign patients have diverted to neighbouring countries such as Malaysia and Thailand, where prices are more competitive. Foreign patients are also converting to their local healthcare facilities.
• We expect losses in China to widen further from an estimated EBITDA loss of S$12mn in FY21 to S$18mn in FY22e. Full-year operations of RafflesHospitalShanghai is the main cause for the widening losses. Since its July 2021 opening, the hospital has operated only at a limited scale, as it is dependent on licensing and arrival of equipment.

Maintain NEUTRAL with a lower TP of S$1.27, from S$1.35

Our FY22e earnings are cut by 8% and our DCF valuation WACC is nudged up from 6.8% to 7.1% due to a higher risk-free rate assumption.