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Raffles Medical share price

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Crisis? What crisis? Raffles Medical share price suffered a major correction which saw it dropped to a one-year low of $1.20. After reviewing the latest financial results, I don’t see any major concern on the healthcare provider’s performance. In fact, I think the correction is a healthy one and should not raise any red flag for investors.

The correction in the Raffles Medical Group share price is indeed puzzling given that the Group announced a record quarterly revenue of S$120.1 million in Q2 2017, a 1.0% increase from S$119.0 million in Q2 2016. Net profit after tax attributable to owners of the Company increased by 0.5% from S$16.8 million in Q2 2017 to S$16.7 million in Q2 2016.

Whilst the recent financial result is nothing to shout about, it should not warrant such drastic decline in Raffles Medical share price. The only major concern I can think of should be the high capital expenditure for the China hospital projects. Raffles Medical is building not one, but two hospitals, in China in a bid to expand its investment moat. Construction of the 700-bed RafflesHospital Chongqing and 400-bed RafflesHospital Shanghai is progressing well. These hospitals are targeted to be operational by second half 2018 and second half 2019 respectively.

Raffles Medical

Investor’s concern could be manifested by the latest quarterly report indicating the payment of $53.6 million for investment properties under development. To be frank, I am not against management deploying cash to invest for the future. Although the free cash flow for 2nd quarter has been impacted by the capital expenditure for the China hospital projects, one should not judge a company on a single quarter results.

2QFY17 financial report revealed that net cash from operating activities was $26.3 million. The Group’s cash and cash equivalents decreased by S$7.0 million from S$119.4 million as at 31 March 2017 to S$112.4 million as at 30 June 2017. In this regard, the cash flow is still healthy at the moment.

I continue to like Raffles Medical’s growth story. Raffles Holland V, representing the Group’s initiative of locating comprehensive healthcare services with other lifestyle attractions in prime suburban regions, is fully leased as at 31 July 2017. The rental income from Raffles Holland V would help to bolster the Group full year earnings.

RafflesMedical continued to expand its network of clinics by opening a new clinic at Hillion Mall in Q2 2017. At the same time, existing clinics at Asia Square, Clementi and Nex were relocated or refurbished to serve our patients better. Four new clinics are scheduled to open in Q3 2017, two at the new Changi Airport Terminal 4 and two in-house clinics in Dover and Tampines. Northpoint City clinic will re-open in September 2017 after the mall refurbishment.

All eyes should be on the opening of RafflesHospital Extension in Q4 2017. It will allow the hospital to further increase its breadth and depth of clinical services with expanded capacity in both specialist outpatient and inpatient facilities.

RafflesHospital’s Emergency Care Collaboration with the Ministry of Health (MOH) was extended in June 2017 for another 5 years, allowing SCDF ambulances to continue to bring patients to RafflesHospital for subsidised care. With the opening of RafflesHospital Extension, RafflesHospital can leverage on its growing specialist physicians, increased bed capacity and outpatient clinics to care for the various groups of patients: private and subsidised, local and foreign.

Listed in Singapore Exchange (SGX) since 1997, Raffles Medical share price has been on an explosive bull run since the Great Financial Crisis. The share price surged from $0.60 in 2008 to $4.70 in 2016. There was a share split carried out in 2016. Hence, this led to the current share price level. Nonetheless, current Raffles Medical share price indicated a loss of form. Thus, this may represent an opportunity for investors to accumulate on the cheap.

Being in a defensive sector, Raffles Medical enjoys a competitive advantage due to its 40 year of track record and strong branding. Due to ageing population, the demand for healthcare will continue to grow and public healthcare spending will also increase to over $13 billion by 2020 according to Singapore Budget 2015. Hence, Raffles Medical Group’s partnership with MOH will enable it to ride on the increase in public healthcare spending.

Raffles Medical’s wide network of services is not something that can be replicated easily because of the high entry barrier of the healthcare business. This sector is quite capital intensive because of the need for high-end equipment and also requires skilled specialists. Clearly, Raffles Medical is leveraging on these factors and use them to build its investment moat.

I am actually quite bullish on the long-term prospect of Raffles Medical share price because of management’s proactive approach to expand business footprint and diversification of revenue sources. Although there are challenges arising from the economic slowdown and increasing competition from regional countries for foreign patients, Raffles Medical Group is stepping up its game by investing in overseas hospitals. So, I am convinced Raffles Medical will ride out the storm.

Raffles Medical share price is currently trading at Price/Book Value of 3 and P/E ratio of 30. This seems to suggest that Raffles Medical share price may be overvalued at the moment. Against the backdrop of weak demand and slowing medical tourism in Singapore, the share price still has room to continue falling. Previously I have set a target price of $0.80 to enter this counter. On the current form, the opportunity to buy Raffles Medical shares could arrive in the coming months. Till then, enjoy the ride.

Read my articles on Raffles Medical below:

  1. Raffles Medical Group’s Return on Equity (ROE)
  2. Analysis on Raffles Medical Group
  3. Raffles Medical shares power ahead
  4. Raffles Medical Group stable growth
  5. Raffles Medical Group’s proposed stock split

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Add a Comment
  1. Hi Gerald,

    Wonderful article! Agree with your POV on the soundness of Raffles Medical, With reference to your article, I have 2 questions.

    1. Is there any particular reason or calculation that led you to the specific target price of $0.80 (or $0.60 in your previous article)? Assuming a similar profit, the PE ratio would be around 20, which is quite low for a healthcare stock, especially for RMG considering its stable growth.

    2. Given that the overall global markets seem inflated, and may undergo a correction, would you recommend keeping RMG during the recession (as a defensive stock) or to pull out your investments altogether to hold in cash and bonds?

    Yours sincerely,
    Huang JH

  2. Hi Huang,

    Thank you for your queries and comments. You asked very valid questions which made me think deeply on Raffles Medical. Please check out my article on Raffles Medical on 23rd August 2017.


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