Raffles Medical Crashed 10% in Two Days: Should Investors Buy the Dip?
Raffles Medical Group (SGX: BSL), or RMG, witnessed a sharp turn in fortunes this year.
The integrated healthcare provider, which owns and operates its flagship Raffles Hospital in North Bridge Road, reported a sparkling set of earnings for its fiscal 2021 first half (1H2021).
Revenue surged by 42.4% year on year to S$343.8 million as the group supported the government in its COVID-19 vaccination and Polymerase Chain Reaction (PCR) swab test initiatives.
Net profit more than doubled year on year to S$39.4 million.
In contrast, 1H2020 saw a 5.4% year on year dip in revenue while net profit plunged by 41.6% year on year.
Unsurprisingly, RMG’s share price has been on a tear, rising from S$0.99 at the start of this year to a high of S$1.54 last Friday.
However, in the last two days, the healthcare provider’s share price has crashed by 10% to S$1.38.
Does the decline present an opportunity to accumulate shares in the group?
Or should investors remain wary and stay on the sidelines?
Easing PCR requirements
Over the weekend, the Singapore government announced new rules regarding border measures and vaccinated travel lanes or VTLs.
Travellers who are arriving or transiting through Singapore for most categories will no longer need to undergo an on-arrival PCR test.
Instead, they will only need to do an end of stay-home notice PCR test.
RMG is the first medical provider partner for the Civil Aviation Authority of Singapore to conduct PCR tests for travellers using VTLs.
Because of the new ruling, RMG will not be required to do as many tests as originally planned.
Investors may, therefore, worry that the group’s revenue and net profit may be lower than originally anticipated.
A temporary boost
RMG’s pandemic-related boost was never meant to be a panacea for the problems it faced last year.
The deferment of non-essential medical procedures and the plunge in medical tourism were the causes for the decline in net profit last year.
RMG had, therefore, pivoted to PCR tests and vaccinations to fill this revenue gap.
While the additional revenue is welcome, investors should be aware that the PCR tests and swabbing will provide just a temporary boost to revenue during this trying period.
Hence, the reduction in PCR testing should be taken into context.
As this income source was never meant to be a permanent one, investors need to look beyond these changes in border measures and peer into the core business of RMG.
China growth
RMG has ventured beyond its home market of Singapore and successfully built and opened two new hospitals in China.
The first, a 700-bed hospital in Chongqing, was opened in 2019 and serves the province’s 34 million people.
Raffles Hospital Shanghai, a 400-bed hospital located in the Pudong area, was RMG’s second China hospital that began operations just this year.
The group has also been operating a medical facility in Beijing since 1994.
These new hospitals represent potential growth for the group as they ramp up capacity over time.
While the new COVID-19 outbreaks in China are a concern, these are short-term challenges that should not detract from their long-term growth potential.
Other initiatives
RMG also has other growth initiatives up its sleeve.
It recently collaborated with China Life Healthcare, a unit of China Life Insurance (SEHK: 2628), to work on the provision of medical services and healthcare management to support aging populations.
The group has also tapped on technology to roll out a telemedicine service.
It released an app called Raffles Connect that allows patients to video consult a Raffles Medical doctor, make appointments, and purchase health supplements and other services.
In addition, RMG also offers a comprehensive range of medical services including integrated shield plans, dental services, and traditional Chinese medicine consultations.
Get Smart: A resilient, high-quality business
RMG has proven itself as a dependable healthcare provider that puts patients above profits.
By doing so, it has earned the trust and respect of the community and has been enlisted by the Singapore government to help in the fight against COVID-19.
While the recent share price crash may be disconcerting, it’s important to assess the long-term potential of the business and not be fazed by short-term volatility.
Healthcare has proven to be a resilient sector that should witness continued demand, and investors who want to gain exposure to it may like to add RMG to their investment watchlist.
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Disclaimer: Royston Yang owns shares of Raffles Medical Group.
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