Raffles Medical Group Return on Equity

On 24 April 2017, Singapore’s leading private healthcare provider, Raffles Medical Group, announced that it is developing its second international tertiary hospital in China.

When completed in 2018, RafflesHospital Chongqing will be able to serve local and expatriate patients in the western part of China as well as foreign patients from Central Asian republics. Meanwhile, construction of RafflesHospital Shanghai has commenced and is proceeding smoothly.

For the past few years, Raffles Medical Group has been building its investment moat by increasing number of clinics, expanding its flagship hospital in Singapore, refurbishing existing clinics, acquiring overseas medical centres and developing new hospitals in China. Clearly, its intention is to grow into a regional healthcare player in order to capture market share.

Raffles Medical Group competitive advantage

Raffles Medical Group’s key competitive advantage is that its strong operating cashflow enabled the Group to support its various investments. This means that its existing operation activities are able to generate enough cash to fund business growth. For 1Q2017, the Group maintained its strong cashflow from operating activities of S$18.2 million in Q1 2017. This figure is more than sufficient to meet the investment and capital expenditure of $14.4 million in Q1 2017.

The need for overseas expansion is driven by the small market in Singapore. Reports of medical tourism slowing down in Singapore started to surface in early 2016. Apparently, Singapore Tourism Board stopped providing market data for medical tourism since 2015 but industry players have pointed out that neighboring countries such as Thailand, Malaysia and Indonesia have stepped up their game in recent years to compete with Singapore in this arena. Basically, private medical players in Singapore, such as Raffles Medical Group, have priced themselves out of the market.

In view of the bearish market sentiment, Raffles Medical Group share price has been falling and as of late June 2017, the price is languishing at 52 week low. The Price/Book ratio stands at about 3.4 while Price/Earning ratio is a staggering 33.3. The data seem to suggest that this counter may be overpriced at the moment. Thus, the correction is likely to continue and the stock price is expected to be bearish going forward.

One of the key metrics to assess management’s ability is the [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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