Broker: UOB Kay Hian
Date of Report: 8 July 2025

Raffles Medical Group: Earnings Growth on Track Despite Margin Pressures – Is Now the Time to Buy?

Overview: Raffles Medical Group’s Position and Outlook

Raffles Medical Group (RFMD) stands as a leading healthcare provider headquartered in Singapore, operating an extensive network of clinics, imaging centers, and hospitals both in Singapore and China. As the healthcare landscape undergoes rapid evolution, RFMD continues to expand, navigating both sector headwinds and emerging opportunities.

The latest review from UOB Kay Hian reaffirms a BUY recommendation, maintaining a bullish stance on RFMD with an upgraded target price of S\$1.18, representing an 18% upside from the current price of S\$1.00. The increase in target price is fueled by anticipated earnings growth, strategic expansion in China, and share buyback momentum.

Key Stock Data and Performance Snapshot

• Bloomberg Ticker: RFMD SP
• Market Capitalization: S\$1.88 billion
• Shares Issued: 1,860.5 million
• 52-Week High/Low: S\$1.07 / S\$0.82
• Major Shareholder: Dr Loo Choon Yong (53.8%)
• FY25 NAV/Share: S\$0.58
• FY25 Net Cash/Share: S\$0.19
• Dividend Yield (2025F): 3.1%

1H25 Results Preview: What to Expect

RFMD is scheduled to release its 1H25 results on 28 July. The company is expected to post steady earnings growth, but not without headwinds. Key factors at play:

• Manpower Cost Pressures: Persistent competition for nurses in Singapore is driving up manpower costs. Staff cost ratio is expected to revert to 50% of revenue from 41% in 2H24, with further pressure from public sector pay hikes announced by the Ministry of Health (up to 7% for healthcare professionals and 4% for nurses from 2H25).
• Challenging Hospital Services Landscape: The strong Singapore dollar and stiff regional competition, especially from Malaysia and Thailand, are impacting foreign patient inflows—over 50% of RFMD’s foreign patients are from Indonesia, many now choosing more affordable alternatives in neighboring countries.
• Positive China Operations Momentum: Chinese hospitals are expected to deliver higher contributions as patient volumes ramp up, with Raffles Hospital Shanghai’s revenue up 30% year-on-year in 2024 and its inclusion in China’s national health insurance program (Yibao) in 1H25.

Segmental Analysis: Performance Drivers and Risks

Healthcare Services: Steady Growth Anticipated

• Return-to-office trends are bolstering patient footfall and demand for healthcare services.
• 1H25 revenue is projected up 15% year-on-year (+5% half-on-half), with operating profit expected to surge 16% year-on-year (+83% half-on-half), driven by both higher volumes and improved margins.
• Risks include potential spikes in operating costs and lower-than-anticipated patient numbers.

Hospital Services: Margin Pressure but Cost Efficiencies Emerging

• Revenue growth for 1H25 is expected to be muted (+4% year-on-year, +3% half-on-half), with stable domestic patient load but continued weak foreign patient numbers.
• Operating profit is set to rise (+54% year-on-year, +3% half-on-half) due to cost efficiencies, ramp-up of higher-margin elective surgeries in Singapore, and continued progress in China.
• Gestation losses from newly established Chinese hospitals remain a drag, but outperformance is possible if these units exceed expectations.

Insurance Services: Accounting Changes Lead to Continued Small Losses

• New accounting standards require insurance expenses to be frontloaded, resulting in continued segment losses for another 1-2 years.
• 1H25 operating loss is estimated at around S\$3 million.

Financial Highlights: Robust Balance Sheet and Earnings Growth

Valuation and Recommendation: Why RFMD Remains a BUY

The updated target price of S\$1.18 is now pegged to a 31x PE multiple (previously 28x), at +0.5SD to RFMD’s long-term mean, reflecting several near-term catalysts:

• Ongoing share buyback program supporting share price performance
• Expected ramp-up of Chinese hospitals’ operations, especially in Shanghai and Chongqing
• Potential for earnings-accretive M&A activity, particularly in China and Vietnam
• Sustained domestic demand recovery post-pandemic

Despite recent gains in share price, the broker sees further upside potential on robust earnings growth and strategic expansion initiatives.

Key Catalysts to Watch

• Faster-than-expected patient volume growth in China hospitals
• Stronger cost efficiencies at Raffles Hospital Singapore
• Material M&A transactions or new market entries in Asia

Risks and Earnings Sensitivities

• Escalation in manpower costs due to public-private competition for nurses
• Further strengthening of the Singapore dollar, impacting medical tourism
• Lower-than-expected patient footfall in core segments
• Slower ramp-up or continued gestation losses at new Chinese hospitals

Summary: RFMD’s Investment Case Remains Strong

Raffles Medical Group continues to deliver on long-term growth strategies, balancing short-term cost pressures with productivity initiatives and international expansion. Investors looking for resilient growth in the healthcare sector, exposure to Asia’s rising healthcare demand, and a robust balance sheet will find RFMD an attractive proposition. The company’s diversified earnings base, strong net cash position, and active capital management underpin its investment appeal for 2025 and beyond.