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$Raffles Medical(BSL): solid growth in the long term?

By Ethan Ho

$Raffles Medical(BSL): solid growth in the long term?

Brief Background:
Raffles Medical Group Ltd is a healthcare company, engaged in the activities relating to the operation of medical clinics and other general medical services. The Company operates in three segments: healthcare services, hospital services and investment holdings.

Recent Events:
FY Result Release Date: 20 Feb 2017

Related news:
Raffles Medical's net profit inches up 1.3% to $70.2m
http://www.straitstimes.com/business/compa...

Raffles Medical Group says FY PATMI S$70.2 million, up 1.3 percent
http://www.reuters.com/article/brief-raffl...

Raffles Medical’s FY16 earnings rise 1.3% to $70.2 mil on higher revenue
http://www.theedgemarkets.com.sg/article/r...

Key Financial Highlights:

1. Group observed a 15% growth in revenue, from $410.5m to $473.6m during the one-year period. Meanwhile, Raffles medical gained 1.3% rise in net profit to $70.2m, which is mainly distributed from higher patient load from the expanding RafflesMedical clinic network, with higher revenue from the group’s newly acquired International SOS (MC Holdings) and its subsidiaries.

2. However, according to the company, the growth of revenue was offset by higher staff cost, operating expenses and supplies used, especially the recruitment cost for more doctors, specialists, nurses and ancillary staff to cater to the expansion of the existing business operations.

3. The group has a healthy cash position at $111.9 million as of Dec 31, with $78.9 million (70%) from operating activities.

4. Profit attributable to shareholders has a slight increase of 1.3%, and the group announced a final dividend of 1.5 cents, similar to the amount of last year.

5. From the perspective of Cash flow position, Raffles Medical has a rise of 30% in their free cash flow, but which is mainly driven by the reduction of payment for the investment properties under development.

Refer to the FY2016 result at: https://www.rafflesmedicalgroup.com/docs/d...

Also, stock price is up around 0.7% YTD (as of time of writing on 22 Feb)

Raffles Hospital

According to the Business Times: “In its outlook, the healthcare provider said: ‘The slower economic growth in Singapore and the region may have a dampening effect on health care demand in general . . . The completion of Raffles Hospital extension planned later this year as well as the group's expansion to other regional markets in cities where there is strong demand for reliable quality health care will enable the group to enjoy greater synergies brought about by the expanded reach of our outpatient and inpatient services.’ -Raffles Medical Group reports 1.3% rise in FY2016 net profit as costs increase." Source: http://www.businesstimes.com.sg/companies-...

Is Raffles Medical really worth holding for the long term?

Why Raffles Medical is worth looking at according to some in our community:

@RHBSecuritiesSG’s newest valuation towards $Raffles Medical: “Valuation Is Still Undemanding”.
Refer to the link here: https://www.investingnote.com/posts/23028

UOB Kay Hian stated in their regional morning notes that: “Buy (Maintain) for Raffles Medical”.

Refer to the research report at @MasterLeong’s consolidated post: https://www.investingnote.com/posts/46855

Similarly, Nomura released the report with “buy” rating: “Costs rose faster than revenues in 2016 but we expect this balance to be restored in 2017”. Refer to the research report at @MasterLeong’s consolidated post: https://www.investingnote.com/posts/46855

Some concerns on Raffles Medical:

Opinion from Dawei Lee (CS Research), shared in @Arsenal’s post: “Raffles Medical (downgrade to neutral) – 4Q16 results slightly below expectations; margins under pressure,”. Refer to the attachment in @Arsenal’s post: https://www.investingnote.com/posts/46684

Analysis by @CIMB_Securities : “CIMB Fundamental View - Margins could yet worsen...”. Refer to post link here: https://www.investingnote.com/posts/46699

According to @dagger, Positive and negative points about Raffles Medical include:

Positive:
1) Higher reported earning from higher contribution from all division.
2) Healthy cash position at 111.9mil which can be used to further grow the business
3) Continue to grow it corporate business which attract more MNC to use RMG medical package for their staffs.

Negative:
1) Higher cost due to the recruitment of more doctors, specialists, nurses and ancillary staff to cater to the expansion of the existing business operations." refer to post here: https://www.investingnote.com/posts/46495

DBS gave a “hold” rating but mentioned the point to differ: “Below consensus as we expect profit growth from core operations to be partially negated by gestation costs.” Refer to the research report at @MasterLeong’s consolidated post: https://www.investingnote.com/posts/46855

PhillipCapital also stated in their research report with an “accumulate” evaluation: “Raffles Medical Group Ltd has stepped up its cost management effort and expects to see better results in next few quarters.” Refer to report: https://www.investingnote.com/posts/46828

Key takeaway:

Raffles Medical currently has a P/E ratio of 35.7x which is high but is lower than the 45.7 of the healthcare industry. Earning per share (EPS) is 0.04, with a dividend yield of 1.39%. Raffles Medical also keeps a good return to equity (ROE) of 9.96%. Based on the key financial highlights and the community’s views, it has steady growth in both revenue & profit, a healthy balance sheet & cash flow position and the sustainability of overall healthcare industry, could make Raffles Medical worth holding in the long-run.

Here are some estimations on the target price of Raffles Medical:
@simingzhou: https://www.investingnote.com/posts/46838
@sgxstockanalysis: https://www.investingnote.com/posts/46829
@PhillipCapital: https://www.investingnote.com/posts/46828
@jyyap: https://www.investingnote.com/posts/46644

*This article is co-written and contributed by InvestingNote’s stock analyst, Faye Wang, on 22 Feb. For more information, please visit www.investingnote.com

 
Ethan Ho
Ethan Ho

Personal description: Ethan is a self-taught investor who started investing in the US stock market, and the marketing lead for InvestingNote. Prior to his role in InvestingNote, he was a personal banker dealing with unit trusts and bancassurance in the wealth management division of a bank. He has Capital Markets and Financial Advisory Services (CMFAS) certification. He is a strong advocate for financial and investment literacy as he believes everyone should be able to manage their personal finances well.

Company description: InvestingNote is the free social network platform designed specifically for crowdsource investment ideas, news and interaction for the holistic stock investing community. Besides having access to stock data, users can upload research reports, utilize technical charts and make stock price targets that will be visible to the entire community. Users can also gain reputation points when they have followers, likes and posts. It promotes financial literacy and helps people make more well-informed investment decisions.

Website: www.investingnote.com