Analysts raise earnings forecasts for healthcare firms as Covid-19 testing, vaccinations ramp up

UOB Kay Hian reiterated its "buy" call on the shares of Raffles Medical Group with a higher target price of $1.27.
UOB Kay Hian reiterated its "buy" call on the shares of Raffles Medical Group with a higher target price of $1.27.PHOTO: RAFFLES MEDICAL GROUP

SINGAPORE (THE BUSINESS TIMES) - Two brokerages have raised their respective earnings forecasts for Raffles Medical Group and Q&M Dental Group as they consider these healthcare stocks well-poised to capture opportunities presented by Covid-19.

In a report on Friday (June 11), UOB Kay Hian reiterated its "buy" call on the shares of Raffles Medical with a higher target price of $1.27, compared with $1.12 previously, to factor in 8 per cent to 10 per cent higher earnings forecasts for the financial years 2021 to 2023.

In the view of UOB Kay Hian's analysts, the firm is set to benefit from increasing Covid-19 testing in Singapore and an accelerated rate of vaccinations administered over the next few months.

"We opine that the sustained need for testing as well as continual screening for travellers will enable Raffles Medical to be a proxy for continued healthcare services as the Covid-19 situation evolves into an endemic," said the analysts.

They are expecting such Covid-19-related contributions to also help offset a loss of government grant support in 2021.

The brokerage is also positive on Raffles Medical's recently announced partnership with a subsidiary of China Life Insurance, which will allow collaborations and initiatives across a variety of areas for Raffles Medical's operations in China.

"A potential collaboration in healthcare financing could enable Raffles Hospital in China to be on the medical panel of China Life's medical insurance network, which we opine could aid billing intensity for more expensive medical treatments," noted its analysts.

Meanwhile, KGI Securities has raised its price target for Q&M to 91 cents from 54 cents, while maintaining "outperform" on the dental service company.

Noting a "surprisingly strong" maiden contribution from Q&M's 51 per cent subsidiary, Acumen Diagnostics, for the first quarter of FY2021, KGI Securities analyst Joel Ng said he is confident about the medium-term outlook of the unit. Acumen Diagnostics is mainly involved in the manufacture, sale and distribution of diagnostic test kits for Covid-19.

"Q&M continues to generate stable and resilient earnings, and we foresee no material changes in or threats to its market share in the private dental space in the medium term," said Mr Ng.

"Overall, Singapore continues to be the main revenue driver as a significant proportion of Q&M's sales are generated by the local segment. With Q&M's plans on expanding its network, we expect resilience in future years via gaining greater market share," he added.

Shares of Raffles Medical closed up one cent or 0.9 per cent at $1.15 on Friday, while Q&M shares rose two cents or 3 per cent to 69.5 cents.