Raffles Medical Group: Financial Performances, Risks, and Valuations

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Image Source: Raffles Medical Group's Annual Report 2018
Image Source: Raffles Medical Group’s Annual Report 2018

Founded in 1976 and subsequently listed in the Singapore Exchange in April 1997, Raffles Medical Group (SGX:BSL) have grown from just two clinics in located in the central part of Singapore to now being a leading integrated healthcare provider in Asia, where it also has operations in countries including China, Japan, Vietnam, and Cambodia.

In this article, you’ll learn everything you need to know about Raffles Medical Group – including its operations, financial performances over the past 5 years (along with analyses) plus its latest first quarter results for financial year 2019, catalysts and risks that may affect the Group’s top and bottomline moving forward, and finally, we’ll have a look at the Group’s current valuations vs. its 5-year average.

Let’s begin:

Subsidiaries of Raffles Medical Group:

i. Raffles Hospital:

Located in the heart of Singapore, it offers a full complement of specialist services combined with advanced medical and diagnostic technology.

Its Singapore operations expanded with the opening of Raffles Specialist Centre in January 2018, along with the opening of 2 new General Ward floors to meet the growing demand for inpatient services.

The Group also expanded into China with Raffles Medical Chongqing commencing operations in January 2019, and Raffles Medical Shanghai commencing operations after the Chinese New Year festivities in 2020.

ii. Raffles Medical:

The operation has a network of 80 multi-disciplinary clinics across Singapore, and 6 medical centres in Hong Kong and Shanghai.

It also manages airport clinics in Singapore’s Changi International Airport, and Hong Kong’s Chek Lap Kok International Airport.

iii. Raffles Dental:

It comprises of a specialist dental clinic in Singapore’s Raffles Hospital, and an islandwide network of general dental clinics.

iv. Raffles Chinese Medicine:

Located in Singapore’s Raffles Hospital and in Asia Square, it offers treatments including acupuncture, Chinese herbal medicine, and acupressure (Tui Na).

v. Raffles Health Insurance:

It is an extension of the Group’s healthcare services, where it recently expanded its product offerings with the launch of Raffles Shield, a Medisave approved Integrated Shield plan, making it the seventh player to enter the Shield market.

vi. Raffles Institute Healthcare:

Set up in July 2013 with the objective of contributing to the training of local and overseas healthcare professionals to meet the growing demands for healthcare manpower needs.

vii. Raffles Health:

It develops and distributes a full range of nutraceuticals, supplements, vitamins, and medical diagnostic equipment for personal healthcare in Singapore, and in the regional markets.

Financial Performances over the Past 5 Years (2014-2018):

Revenue:

Revenue, over the past 5 years, saw a 30.6% improvement from S$374.6 million in 2014 to S$489.1 million in 2018. The Group’s revenue have seen an improvement in its top-line every single year:

20142015201620172018
S$374.6mS$410.5mS$473.6mS$477.6mS$489.1m

The Group’s most recent revenue growth of 2.4% to $489.1 million in 2018 (2017: $477.6 million) was due to an increase in revenue from its Healthcare Service division due to contributions from a new contract to provide air borders screening services, as well as addition of new corporate clients. This was offset by a marginal decrease in revenue from the Group’s Hospital Services division.

Profit After Tax:

Profit After Tax, however, remained somewhat constant over the years, where it has been around the range of S$68 million and S$70 million:

20142015201620172018
S$68.0mS$69.0mS$67.9mS$68.7mS$70.8m

Dividends Per Share:

The Group’s Dividends Per Share have improved over the years, where it moved up from 1.83 cents/share in 2014 to 2.50 cents/share in 2018 (except for 2016, where it remained the same as 2015):

20142015201620172018
1.83 cents2.00 cents2.00 cents2.25 cents2.50 cents

Raffles Medical Group gives out dividends on a semi-annual basis – once when it announces its second quarter results and another when it announces its fourth quarter results.

Return on Equity:

The Group’s Return on Equity, however, have gone down over the years (something you might want to take note of), from 12.6% in 2014 to 8.9% in 2018:

20142015201620172018
12.6%11.5%10.5%9.6%8.5%

Financial Results for Quarter Ending 31 March 2019:

Raffles Medical Group announced its first quarter results on 29 April 2019, and here are some key takeaways:

Revenue:

Revenue improved by 6.7% quarter-on-quarter to S$128.3 million (Q1 2018: S$120.2 million) due to an increase in revenue in both Healthcare Services division (contributed mainly by new insurance clients, Primary Care Network (PCN) Scheme, and projects), as well as growth in revenue in Hospital Services division (contributed mainly by higher utilisation of inpatient capacities).

Net Profit After Tax:

Net Profit After Tax, however, dropped 11.2% quarter-on-quarter to S$13.7 million (Q1 2018: S$15.5 million) due to start-up costs from Raffles Hospital Chongqing, which opened its doors on 2 Jan 2019. Excluding that, the Group’s Net Profit After Tax should have grown by 2.1% quarter-on-quarter.

Catalysts and Risks to the Group’s Top and Bottom Line:

Catalysts:

  • Better than expected performance from their two new China hospitals.

Risks:

  • While Singapore is one of the top countries in the region when it comes to medical tourism, but the strong Singapore dollar may lure medical tourists away from Singapore in favour of other countries in the region, where it not only has lower costs, but they will be able to receive quality care.

  • Any slowdown of the global economy may also lead to patients choosing to either delay non-critical treatments, or they may opt for treatments in a public hospital (which is a cheaper alternative).

  • As most of the Group’s revenue is derived from its Singapore operations, any regulatory changes which are not in its favour may affect its overall financial performance.

  • If the two new hospitals in China – Raffles Hospital Chongqing (which commenced operations in 2 Jan 2019) and Raffles Hospital Shanghai (due to complete by 4Q 2019 and commence operations after the Chinese New Year festivities in 2020) fail to perform to its expectations, the Group’s top and bottomline will be negatively affected.

Valuations: Current vs. 5-Year Average:

At its current price of $1.07 (as at time of writing), it’s valuations are as follows: a Price-to-Earnings (P/E) Ratio of 28.1, a Price-to-Book (P/B) Ratio of 2.4, and a Dividend Yield of 2.3% (calculated based on total dividends of 2.5 cents/share given out in 2018).

The Group’s valuation based on a 5-year average is as follows: a P/E Ratio of 31.8, P/B Ratio of 2.0, and Dividend Yield of 2.4%.

Looking at its current vs. its 5-year average, I conclude that, at its current price, the Group is trading at a premium compared to its average – due to its higher current P/B Ratio and a lower dividend yield (compared to its average), even though its current P/E Ratio is lower compared to its average.

In Summary – The Good and The Bad:

To summarise, here are the good and the bad about Raffles Medical Group:

The Good:

  • The Group have seen its revenue increasing over the years.

  • Dividend payout have also seen an increase over the years, which is a plus point for dividend investors who are looking to invest in companies with increasing dividend payouts over the years.

The Bad:

  • The Group’s Return on Equity has decreased over the years.

  • Current Year’s (2019) may be negatively affected due to start-up costs relating to the Group’s two new hospitals in China.

  • Current valuations vs. its 5-year average suggests that at the Group’s current share price is priced at a premium.

Resources:

Raffles Medical Group: Annual Report 2018

Raffles Medical Group 1Q 2019: Financial Results

Raffles Medical Group 1Q 2019: Media Release

Disclaimer: The above article is just my personal sharing about Raffles Medical Group. It is by no means a buy or sell signal. Please do your own due diligence before you make any investing decision. Also, at at time of writing, I do not own any shares of Raffles Medical Group.

About the author

Lim Jun Yuan

A full-time retail investor (since late 2017) who is focused on investing in companies in listed in the Singapore Exchange (SGX). He is into both swing trading as well as long-term investing. His investment strategy involves the use of both fundamental and technical analysis. To find out more about Jun Yuan, please click here.

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