21 December 2022: Raffles Medical Group Ltd (RFMD SP), Samsonite International S.A. (1910 HK)
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Raffles Medical Group Ltd (RFMD SP): Increasing healthcare demand
- Entry – 1.35 Target – 1.45 Stop Loss – 1.30
- Raffles Medical Group is a leading integrated private healthcare provider in the region, operating medical facilities in thirteen cities in Singapore, China, Japan, Vietnam and Cambodia. The Group is the first Asian member of the Mayo Clinic Care Network. RafflesMedical clinics form one of the largest networks of private family medicine centres in Singapore. RafflesHospital, the flagship of Raffles Medical Group, is a private tertiary hospital located in the heart of Singapore offering a wide range of specialist medical and diagnostic services for both inpatients and outpatients.
- Surge in Covid cases. With China easing its Covid restrictions and Covid cases surging in China, Raffles Medical will benefit from this as their medical facilities will be visited by Chinese residents. Raffles Medical has a total of 3 hospitals and 4 clinics located around China. Additionally, they have 3 online stores serving 3 districts in China.
- Increase in tourism. With worldwide borders being opened up, the pent-up demand for travel is finally being satisfied. With an influx of tourist into Singapore, healthcare providers are expecting a wave of travellers requiring pre-departure PCR test in the coming months. With a 15 – 20% increase in PCR demand in the month of november, these numbers are expected to rise even higher as measures are continually relaxed.
- Rise in demand for services. Singapore is currently facing a surge in foreign demand in the healthcare sector, with many foreigners opting for treatment in Singapore. As Singapore opens up its borders, foreign patients return to seek treatment at RafflesHospital. Singapore residents who postponed their elective surgeries also returned for treatment.
- 3Q22 results. Raffles Medical reported strong 3Q results ended in September, with a net profit growth of S$98.2 million, up 57.3% YoY. For the period, revenue grew 6.5% YoY to S$199.5 million while net profit surged by 62.1% YoY to S$38.3 million.
- Updated market consensus of the EPS growth in FY22/23 is 29.4%/-8.0% YoY respectively, which translates to 24.0x/26.2x forward PE. Current PER is 24.8x. Bloomberg consensus average 12-month target price is S$1.61.
(Source: Bloomberg)
Tianjin Pharmaceutical Da Ren Tang Group Corp Ltd (TIAN SP): Panic buying of drugs in China
- RE-ITERATE Entry – 1.06 Target – 1.16 Stop Loss – 1.01
- Tianjin Pharmaceutical Da Ren Tang Group Corporation Limited produces and sells traditional Chinese medicine, western medicine, health products, and healthcare instruments. The Company also manufactures gene-related biopharmaceutical products. Tianjin Pharmaceutical markets its products under the Great Wall, Cypress, and Health brand names. The Group’s businesses cover a wide range of products including Chinese patent medicine, Chinese medicinal drinks, Chinese medicinal raw materials, biotechnology medicine, chemical raw material medicine and preparations, and nutritional and health products. It has over 800 medicinal products in over 20 types of formulations.
- Surge in Covid cases. With the new Year coming up and pent-up frustrations from the strict Covid-zero policy, many residents will take this opportunity to leave their homes and provinces to physically interact with others. Additionally, with the current lack of need for testing, Covid-infected patients may not be aware and spread the virus. These factors will lead to a sharp increase in Covid numbers in sporadic parts of China, causing hospitals to be overcrowded and a shortage of medicinal supplies.
- China opening up. Although China has eased its Covid-zero policy, the reopening of its economy has resulted in huge excess demand for medical supplies. In fact, most pharmaceutical stores have been wiped clean of Covid-related medical supplies by Chinese residents in most provinces. As such we believe that the company which produces such medicinal products is an excellent buy in China’s current environment. This overdemand means that these pharmaceutical companies can potentially ramp up capacity in the near term.
- The company’s A-shares (600329 CH) are trading at 26.9x currently, while SG-listed shares are trading at 7.0x. The average of the historical 5-year PE is 7.7x.
(Source: Bloomberg)
Samsonite International S.A. (1910 HK): Short-term pains for long-term gains
- Buy Entry – 18.5 Target – 21.5 Stop Loss – 17.0
- Samsonite International S.A. is a Hong Kong-based company principally engaged in the design, manufacture, sourcing and distribution of luggages, business and computer bags, outdoor and casual bags, travel accessories and slim protective cases for personal electronic devices. The Company operates its business through three segments. The Travel Bag segment is engaged in travel products with suitcases and carry-ons of three main categories, including hard-side, soft-side and hybrid luggages. The Casual Bags segment is engaged in daily use, including different types of backpacks, female and male shoulder bags and wheeled duffel bags. The Business Bags segment is engaged in business use, including rolling mobile office bags, briefcases and computer bags.
- China to see peak of the current COVID wave by February 2023. China has further lifted COVID measures since early November, and ensuing COVID outbreaks spread across cities with dense populations. However, most cities release a timetable of peak estimates before or during the Chinese New Year period. Meanwhile, China is expected further to lift the quarantine restrictions for inbound tourists in 1Q23. Accordingly, China’s tourism sector is expected to recover quickly in 2023.
- Global tourism to continue to recover in 2023. According to the Economist Intelligence Unit Tourism in 2023 report, the global tourism arrivals will increase by 30% YoY in 2023, following growth of 60% YoY in 2022, but will remain below pre-COVID levels. Meanwhile, EIU also expects international arrivals to recover back to 2019 levels in 2024.
- 3Q22 results review. Net sales jumped by 42.0% (+54.7% constant currency) YoY to US$790.9mn. Operating profit jumped by 140% YoY to US$121.8mn. Profit attributable to the equity shareholders arrived at US$58.2mn in 3Q22 compared to a loss of US$5.2mn in 3Q21. The turnaround of the business and financials was due mainly to the effects of the COVID-19 pandemic on demand for the Group’s products moderated in most countries due to the continued rollout and effectiveness of vaccines leading governments in many countries to further loosen socialdistancing, travel and other restrictions, which has led to the continuing recovery in travel. However, the Chinese government reinstated travel restrictions and social distancing measures in an effort to combat further outbreaks of COVID-19, which has slowed the Group’s net sales recovery in China.
- The updated market consensus of the EPS growth in FY22/23/24 is 1,244.4%/46.3%/18.2% YoY respectively, translating to 19.0×/12.9x/10.9x forward PE. The current PER is 10.9x. Bloomberg consensus average 12-month target price is HK$27.42.
(Source: Bloomberg)
Fuyao Glass Industry Group Co Ltd (3606 HK): Benefiting from the booming EV trend
- RE-ITERATE Buy Entry – 33.0 Target –37.0 Stop Loss – 31.0
- Fuyao Glass Industry Group Co Ltd is a China-based company, principally engaged in the manufacture and distribution of float glasses and automobile glasses. The Company’s products portfolio consist of automobile glasses, such as coating glasses and others, which are applied in passenger cars, buses, limousines and others, and float glasses. The Company distributes its products within domestic markets and to overseas markets.
- High-value-added products are the growth driver. In 9M22, the high value-added products such as panoramic roof glass, windshield glass with a camera, head-up display glass, and soundproof glass accounted for 43.8% of the overall product mix. Accordingly, the overall ASP increased by 11.0% YoY during the period. Moving forward, the increasing demand for EVs will drive the growth of the utilization of smart glass and energy conservation glass.
- Falling raw material and shipping costs. Float glass prices further dropped in November due to soft demand and excessive inventories. Meanwhile, global freight rates had been trending downward with the gradual normalization of the global supply chain. Both tailwinds will help margin improvement in the near term.
China Float Flat Glass 4.8/5.0mm price
Global Container Freight Index
- Record high quarterly performance. 3Q22 operating revenue jumped by 34.3% YoY to a historical high of RMB7.5bn. 9M22 operating revenue grew by 19.2% YoY to RMB20.4bn. 3Q22 gross profit jumped by 66.1% YoY to RMB2.6bn. 3Q22 GMP increased by 6.6ppts to 34.9%. Profit attributable to owners of the company jumped by 83.8% YoY to RMB1.5bn. NPM grew by 6.6ppts to 20.4%.
The updated market consensus of the EPS growth in FY22/23 is 48.0%/8.7% YoY respectively, which translates to 16.6x/15.2x forward PE. The current PER is 21.0x. Bloomberg consensus average 12-month target price is HK$45.93.
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Trading Dashboard Update: Cut loss on SATS (SATS SP) at S$2.80. Add Tianjin Pharma Da Ren Tang (TIAN SP) at S$1.06 and Shanghai Fosun Parmaseutical (2196 HK) at HK$26.5.
