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Raffles Medical Group stable growth

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For first quarterly results of 2016, Raffles Medical Group (RMG) had a stable growth. Profits for the period increased 1% to $15.2 million year-on-year. Revenue actually grew by 23.0% from $95.0 million in Q1 2015 to $116.9 million in Q1 2016. The increase in revenue was driven by higher business volume arising increased patient load.

During this period, the management of RMG did not manage to rein in lease expenses and staff costs. This has resulted in higher revenue being offset by higher expenses. However, the Group’s net cash position increased from $53.8 million as at 31 December 2015 to $78.4 million as at 31 March 2016. This was due to strong operating cash flows generated from increased business operations.

Apart from having a strong cash-flow, RMG has a strong balance sheet as well. Current assets grew from $170 million as at 31 December 2015 to $216 million as at 31 March 2016. Correspondingly, the total liabilities also increased from $192 million to $226 million. The increased liabilities was due to increased payable arising from acquisition of subsidiaries during the financial year 2015.

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The long-term debt is manageable, currently at only $20.8 million. Given RMG’s cash pile of $110 million, the non-current loans and borrowings are not a concern for the company. In fact, to grow the company, RMG may even need to tap its cash holding or borrow more to fund more acquisitions. This will help to position itself well for the future.

All attention on RMG is now focused on the Raffles Holland V, which RMG expected to receive the Temporary Occupation Permit in March 2016. Raffles Holland V is a lifestyle mall with food and beverage and retail services. Level 5 of the mall will be occupied by RMG and house several specialist clinics. This development is therefore seen as a dividend catalyst for RMG and will help to mitigate clinic rentals in prime locations.

RafflesHospital witnessed a strong performance in Q1 2016 with stronger contributions from laboratory and inpatient services. To strengthen growth, the hospital extension project is progressing well and is expected to complete by 2017. This will contribute an additional 220,000 square feet of gross floor area to the hospital. The new integrated medical complex will not only support existing operations but offer possible future expansion opportunities.

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On 16 October 2015, the Group invested $32.6 million in a joint venture with International SOS to enhance and expand the services of ten clinics operating under MCH in China, Vietnam and Cambodia. This investment effectively made RMG a regional healthcare provider and is expected to generate substantial revenue for the group. In fact, from 17 October 2015 to 31 December 2015, MCH contributed revenue of $9.3 million to RMG’s results. Henceforth, this investment may be a game-changer for RMG going forward.

RMG completed a stock split exercise in May 2016 that resulted in each company share being split into three. After the exercise, the shares remain resilient and is now trading at $1.56 per share. I have always maintained that RMG is an exciting growth company that is well-managed. However, whether Raffles Medical Group share price will continue its rising trend will hinge a lot on management execution on the current slew of projects. Hence, I will enter this stock at $0.50.

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Updated: July 20, 2016 — 2:56 pm

2 Comments

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  1. Hi, it was written above that you will enter the stock at $0.50. Is it a typo error? If not, could you explain why $0.50?

  2. Hi ZC,

    It wasn’t a typo and frankly I doubt it will reach that sort of level unless a market correction occurs. But I feel that Raffles Medical is currently overvalued. At $1.62, it is nearing record high for its share price (post stock split).

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