Dear all,

Raffles Medical caught my attention recently as CLSA raised its target price from $1.70 to $1.92 on 8 Feb 23. $1.92 is a street high target with most analysts’ target price ranging between $1.58 – 1.65. Raffles Medical closed down 1 cent to $1.45 last Fri.

Based on my personal view and observation, generally speaking, analysts seldom issue updated call so near to the company’s results release date. I mean there is usually no such urgency to do so, unless they have a significant change in view on the company. For those analysts who do, their calls are usually quite accurate.

 

At $1.45, are there any trading opportunities?

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In a nutshell, there may be trading opportunities for Raffles Medical. However, do read carefully the basis and importantly the risks below. For a more complete picture on Raffles Medical, it is advisable to refer to Raffles Medical’s analyst reports (Click HERE) and SGX website (Click HERE).

 

*Basis*

a) Analysts are positive on Raffles Med with average target $1.68

Based on Bloomberg dated 15 Feb, consensus target price for Raffles Medical is around $1.68. If the consensus is right, this represents a potential capital upside of around 16%.

Figure 1: Average analyst target around $1.68, representing a potential capital gain of around 16%!

Source: Bloomberg 20 Feb 23

b) FY22F net profit should meet or exceed consensus estimates

Raffles Med should meet consensus FY22F net profit estimates of around $113m. 9MFY22 net profit were already 98m, comprising of 87% of consensus estimates.

c) Tailwinds to aid Raffles Medical

With China reopening, coupled with global reopening, medical tourism and demand for its healthcare services in China are examples of tailwinds to aid Raffles Medical over the medium to long term.

d) Bullish chart, coupled with bullish price action

Raffles Medical’s chart looks bullish. On 15 Feb Wed, Raffles Med was able to bounce off $1.42-1.43 support region and closed near day high at $1.46. This performance is especially significant given the weak market sentiment on Wed. (STI fell 37 points or 1.1% on Wed) Most of Raffles Medical’s medium and long term moving averages are heading higher whereas shorter term 20D & 50D exponential moving averages are starting to trend lower.

It is noteworthy that both UOB KH and CGS CIMB technical analysts share the same bullish view as me as both issued technical buy calls on 16 Feb.

Based on price action (purely my own observation), there seems to be buyers around $1.45.

Near term supports: $1.45 / 1.42 – 1.43 / 1.40

Near term resistances: $1.46 / 1.48 / 1.50 / 1.52

Chart 1: Raffles Medical bounced off its 50D SMA and Fibonacci level; looks bullish

Source: InvestingNote 19 Feb 23

e) Price moves ahead of results

Based on Chart 1 above, suffice to say that Raffles Med typically starts moving higher (1 week – 1 month) ahead of results. Although it has started to move from its intraday low $1.36 on 17 Jan 23 to an intraday high of $1.52 on 9 Feb, prices have retraced quite a bit to around $1.45. If it follows past patterns, Raffles Medical may climb this week ahead of its results release on 27 Feb before market opens.

 

*Risks*

a) Trades at around 26.7x FY23F PE –> Not exactly cheap valuations

Based on Bloomberg, Raffles Medical is trading at 26.7x FY23F PE. Although such valuations are not cheap, they are not excessive either. Raffles Medical’s average 10-year PE is around 27.9x. Furthermore, there is a lack of large listed health care players with net cash in Singapore. Thus, I reckon that for those who wish to have exposure in healthcare sector, they are likely to consider Raffles Medical as one of the stocks to invest in.

b) Consensus estimate Raffles Med’s net profit to drop 11% in FY23F

This can be viewed as good or bad.

i) Good: At the very least, expectations are not sky high and may set the stage for exceeding the estimates.

ii) Bad: If net profit really drops in FY23F, personally, it is not so attractive to me as I like to buy companies with increasing earnings and rising earnings per share.

c) Will FY22F revenue beat estimates?

Previously, I mentioned that Raffles Med should be able to meet FY22F consensus net profit, However, I am not sure whether FY22F revenue can meet consensus FY22 revenue as 9MFY22 revenue only comprise of 75% of consensus estimates.           .

d) Management is usually cautious

Raffles Medical’s tone seen in its press release over the past few quarters seems to be usually rather measured. They are not usually very bullish hence I am not sure how much the share price can react to earnings.

e) Buying ahead of results is risky

At the risk of sounding like a broken record, I wish to emphasise that buying ahead of results is risky. This is because there is no guarantee that company share price may move up even on good results / guidance. In addition, if Raffles Medical disappoints on results or / and guidance, it is likely to have an adverse effect on Raffles Medical’s share price.

 

Conclusion

Notwithstanding the potential aforementioned risks (the list is by no means exhaustive), Raffles Medical may be a potential trading play as we head to its FY22F results release on 27 Feb, Mon before market opens.

Just my personal view only. Have a good week ahead! 😊 Busy and exciting times ahead!

Readers have to assess their own % invested, risk profile, investment horizon and make your own informed decisions. Everybody is different hence you need to understand and assess yourself. The above is for general information only. For specific advice catering to your specific situation, do consult your financial advisor or banker for more information

P.S: I am vested in Raffles Medical.

 

Disclaimer

Please refer to the disclaimer HERE