UOB Kay Hian
Date of Report: 29 July 2025

Raffles Medical Group: Margins Resilient, China Turnaround in Sight as 1H25 Results Slightly Miss Expectations

Overview: Raffles Medical Group Financial Snapshot and Market Position

Raffles Medical Group (RFMD), a leading integrated private healthcare provider in Asia, continues to demonstrate resilience in a dynamic market environment. With a comprehensive service offering spanning primary and tertiary care to health insurance, RFMD remains a key player in Singapore and the region.

• Share Price: S\$1.07
• Target Price: S\$1.25 (Upside: +16.8%, previously S\$1.18)
• Market Cap: S\$1,980.5 million (US\$1,542.6 million)
• Major Shareholder: Dr Loo Choon Yong (53.8%)
• 52-week Price Range: S\$1.09 / S\$0.82
• GICS Sector: Health Care

1H25 Results: Revenue Growth and Profit Margins Hold Steady Despite Slight Miss

RFMD reported a 3.5% year-on-year revenue increase for the first half of 2025, reaching S\$378.4 million. Net profit after minority interest (PATMI) grew 4.8% to S\$32.1 million. While both revenue and net profit showed growth, these figures represent a slight miss, with 1H25 net profit forming 45.4% of the full-year forecast. The shortfall was attributed to:

• Muted revenue growth in healthcare services and China hospitals
• Lower government wage credit
• Unfavorable forex translation due to a weaker US dollar

Excluding one-off items, core net profit would have increased by 8.8% year-on-year to S\$32.5 million.

Key Financial Highlights (S\$ million)

Key Margins and Cost Ratios

• EBITDA margin: 16.5% (1H24: 16.6%)
• Operating margin: 10.8% (1H24: 11.3%)
• Adjusted PATMI margin: 8.5% (1H24: 8.4%)
• Staff Costs as % of Turnover: 41.6% (down 0.6ppt yoy)
• Inventories & Consumables Used as % of Turnover: 8.0% (down 0.1ppt yoy)

Segment Analysis: Healthcare, Hospitals, China, and Insurance

Healthcare Services: Modest Growth Amid Facility Closure

Healthcare services revenue rose marginally by 0.7% year-on-year, impacted by the closure of the Transitional Care Facility at Singapore Expo. Pre-tax profit for this division dropped 9.7% due to adverse currency translation and reduced wage credit. Despite these headwinds, underlying demand remains healthy, bolstered by ongoing work-from-office trends expected to drive revenue and profit growth in the second half of 2025.

Hospital Services: Margin Expansion on Cost Discipline

The hospital segment saw revenue grow 3.8% and pre-tax profit surge 24.3% year-on-year, propelled by improved cost efficiencies and higher-intensity patient billing. Pre-tax margin for this division expanded 1.7 percentage points to 10.2%. However, medical travel to Singapore faces persistent challenges:

• Strong Singapore dollar against regional currencies
• Stiff competition from other regional hospitals (estimated 20–30% of foreign patients lost over the years)

To counteract rising manpower costs, RFMD is considering progressive price increases for select hospital services.

China Operations: EBITDA Breakeven Targeted for 2026

China operations recorded a 0.4% year-on-year revenue increase (constant currency), as management repositioned Chongqing and Shanghai hospitals to attract high-middle class clientele. Following a challenging first half due to the US-China tariff war, management is optimistic for a recovery in consumer sentiment and targets EBITDA breakeven for China hospitals by end-2026.

Insurance Services: Losses Narrow, Path to Profitability

Insurance services revenue increased by 10.1% year-on-year, while pre-tax loss narrowed to S\$3.1 million from S\$6.4 million a year ago. Improved cost management and tighter claims checks contributed to the reduced loss, and continued scrutiny is expected to further pare down losses in the second half of 2025.

Cost Management and Outlook: Navigating Manpower Challenges

RFMD demonstrated stable margin performance in 1H25, thanks to effective cost controls. The staff cost-to-revenue ratio and consumable costs improved year-on-year. However, the Ministry of Health’s announcement of pay increases of up to 7% for healthcare professionals (public nurses up to 4%) from the second half of 2025 is anticipated to normalize staff costs as a percentage of turnover closer to pre-pandemic levels (~50%). This will pressure margins, but selective pricing adjustments should help offset the impact.

Financial Projections and Key Metrics

Earnings Revision and Valuation

• 2025–2027 PATMI estimates cut by 3–7% to S\$67.1m, S\$74.8m, and S\$84.1m, respectively, reflecting the 1H25 miss and tempered revenue growth projections.
• Target Price: S\$1.25, based on 31x 2026 PE (0.5 standard deviations above the long-term mean PE).
• Valuation remains underpinned by expectations for a China hospital turnaround and favorable market sentiment driven by the MAS Equity Market Development Programme.

Outlook and Investment Recommendation

RFMD is well-positioned to benefit from several catalysts:

• Potential breakeven and turnaround of China hospital operations
• Earnings- and valuation-accretive mergers and acquisitions

Investors are advised to remain invested in Raffles Medical Group, given its robust cost controls, improving segmental margins, and the prospect of a strong recovery in its China operations.

Balance Sheet, Cash Flow, and Key Metrics

Conclusion: Steady Performance, Opportunities Ahead

Raffles Medical Group has delivered steady, if slightly underwhelming, first-half results in 2025, but remains on track for medium-term growth with a focus on margin resilience and operational excellence. Investors should watch for continued improvements in cost management, the anticipated China turnaround, and strategic M&A activity, all of which could serve as key catalysts for share price appreciation.