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Raffles Medical shares power ahead

Fresh from the stock split exercise in May 2016, Raffles Medical shares power ahead amid the sluggish stock market condition. On 26 July 2016, the healthcare provider announced another set of solid performance.

Financial Performance

Revenue for second quarter surged 19.8% to $119 million as compared to last year. However, increased in staff costs led to profits of $16.1 million after tax, a marginal increase of only 0.7% as compared to 2015.  The rate of increase for staff costs was higher than the growth in revenue because of more specialist consultants and staff as well as increased staff arising from acquisitions in 2015.

Raffles Medical continued to have strong cash position, with net cash increased from $53.8 million as at 31 December 2015 to S$92.8 million as at 30 June 2016. This was attributed mainly to strong operating cash flows generated by the Group from its increased business operations. Net cash from operating activities was $23.8 million in 2Q16. Cash and cash equivalents increased by $13.0 million from $110.6 million as at 31 March 2016 to S$123.6 million as at 30 June 2016.

Raffles Medical shares

Investments

Notwithstanding the good performance, Raffles Medical has announced interim dividend of $0.005 per share, to be paid out today. The amount is lower than the $0.015 paid out last year, due to the 1-into-3 stock split.

Raffles Medical outlook

There is potential for Raffles Medical shares to rise further because of the various pipeline projects. One of them is the Raffles Holland V, the company’s commercial building at Holland Village which opened for business in June 2016. Level 5 is occupied by the Group’s healthcare services which include family medicine, health screening, dental, traditional Chinese medicine, specialist paediatics, obstetrics and gynaecology, dermatology and radiology services.

As of 25 July 2016, 60% of the space have been committed. Including units under negotiation, the occupancy rate would have been 90%. This is Raffles Medical’s new initiative of locating comprehensive healthcare services with other lifestyle attractions in prime suburban regions and could be a game-changer for the company, in terms of revenue.

The second major initiative is of course the RafflesHospital Extension, which is progressing according to schedule and to be completed by 2017. It will contribute an additional 220,000 square feet of gross floor area to RafflesHospital. The integrated medical complex will not only support the current RafflesHospital’s range of specialist services, healthcare training and clinical research but also offer opportunities for growth and expansion for future years.

Raffles Medical Investment Moats

Apart from building new infrastructure and upgrading existing clinics, Raffles Medical also secured new key contracts with organisations from the services, engineering, property and retail industries such as SATS, SIA Engineering Company, Surbana Jurong and City Development Limited. Thus, the company is building its investment moats and barring unforeseen circumstances, Raffles is expected to continue growing.

As Singapore population is ageing rapidly, the demand for quality healthcare will continue to grow. Hence, healthcare will be an evergreen field in Singapore for the long run. The current economic condition may have some dampening effect on the sector but I believe Raffles Medical is well positioned to grow in Singapore because of its branch network, MCH Clinics and the opening of RafflesHospital Extension next year.

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Investors should pay attention to Raffles Medical’s 55% equity interest in International SOS (MC Holdings) Pte Ltd (MCH). This joint venture with International SOS will expand the services of ten clinics operating under MCH in China, Vietnam and Cambodia. With this joint venture, the Group will become a regional healthcare provider with clinical facilities serving patients in thirteen cities across Asia.  This investment is expected to become a key revenue source for Raffles Medical in the long run because of China’s huge market.

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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SG Wealth Builder

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Updated: September 24, 2016 — 3:42 pm

3 Comments

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  1. “Hence, I will enter this stock at $0.50.”

    This conclusion is unexpected, considering the upside mentioned, and the current trading price of ~$1.50. Am I missing something?

  2. Hi there,

    There is a difference between value and price. I feel that Raffles Medical is currently overvalued. I have the patience to wait until market correction and buy this counter on the cheap.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

  3. Interesting. No issues with that, my views as well. Just checking if it was a typo.

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