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.
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.
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Read my articles on Raffles Medical below:
- Raffles Medical Group’s Return on Equity (ROE)
- Analysis on Raffles Medical Group
- Raffles Medical shares power ahead
- Raffles Medical Group stable growth
- Raffles Medical Group’s proposed stock split
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