Benjamin Graham invented the Net Current Asset Value per Share – NCAVPS, which he used to determine the value of the company he invested in. Based on his formula, Raffles Medical Group (RMG)’s stock price is worth only $0.10, way below the $4.00+ currently traded at the Singapore stock exchange. Being one of my favourite stocks, let’s look into whether the company is undervalued or overpriced.
First of all, from a macro viewpoint, the healthcare sector is an evergreen industry because of Singapore rapidly ageing population. In the coming years, as Singaporeans grow older, the demand for quality healthcare will grow as well. In fact, in the past few years, the Singapore government has been implementing measures to address the bed crunch situation faced by many public and private hospitals. New hospitals will be built and collaborations between the public agencies and private hospital will be developed to alleviate the pressing issue.
An example is the Emergency Care Collaboration between Ministry of Health and Raffles Hospital. Under the collaboration, first announced in December 2014, SCDF ambulances will send patients assessed with non-life threatening conditions to Raffles Hospital’s Emergency Department for treatment if it is the nearest available and appropriate hospital. Should these patients subsequently need to be admitted for inpatient care or referred for specialist outpatient care, these services will also be provided by Raffles Hospital.
Raffles Medical Group’s Profile
Being the largest private medical group in Singapore, RMG enjoys an enviable investment moat as the medical profession is tightly regulated here, thus creating a high entry barrier. As a fully integrated healthcare organisation, RMG operates a full suite of medical services such as family medicine clinics, a tertiary care private hospital, dental and Chinese medicine services, insurance services, an educational healthcare institute and a consumer healthcare division. But what makes the RMG brand so appealing is its international outreach. The company operates more than 100 medical centres in 13 cities in Asia including Singapore, Beijing, Shanghai, Tianjin, Dalian, Nanjing,etc. The Group’s flagship Raffles Hospital in Singapore is a destination of choice for patients from more than 100 countries, with one third of its patients coming from overseas.
Long term debts: Nil
Current Assets: $183 million
Total Liabilities: $125 million
Number of issued shares: 574 million
Net Asset Value: $1.02
Building for Growth
I like RMG for its organic growth strategy as opposed to merger and acquisition approach. The Raffles Hospital has completed the expansion and refurbishment of ten centres (Surgery, ENT, Heart, Cancer, Children’s, Urology, Orthopaedics, Chinese Medicine, RafflesMedical@RH and Emergency Department) in the past 12 months as they continue to cater for more services and patient growth. Raffles Holland V is currently on track to be completed in the first quarter of 2016. Approximately 9,000 square feet will be dedicated to the expansion of the Group’s medical and specialist services to cater to both local and expatriate patients. The Group is also opening new clinics and expanding and upgrading existing clinics to meet increasing service demand.
My Investment Strategy
Based on the company’s business performance, financial strength, corporate strategy and industry outlook, Raffles Medical Group is definitely a good company to invest in. I will set an entry level of $0.80 and exit at $4.00.
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SG Wealth Builder