Raffles Medical Group’s Proposed Stock Split
Raffles Medical Group (RMG) recently announced share split of each company share into three ordinary shares. It is not a done deal yet and the proposed move is still subject to approval of shareholders at a general meeting and the approval of SGX.
The rationale given is that the proposed share split will make the company shares more accessible to retail investors because of the reduction of each board lot. In addition, the move will also expand the shareholder base from the current approximate 7,780 shareholders.
I am not invested in this counter but have been tracking the company’s performance. Given that SGX has reduced the board lot trading size from 1000 to 100, RMG’s rationale for the stock split is not exactly convincing. This is because most retail investors can afford investing in RMG at current price, albeit at lower board lot size. On the flipside, existing shareholders may face risks of a decline in their share value after the implementation of the proposed share split. There is no assurance that the subdivided shares will be $1.39 after the implementation of the stock split.
On its financial health, RMG is doing reasonably well. Profit after tax is $69.3 million in 2015, a growth of 2.4% increase from $67.6 million in 2014. Notably, RMG registered a record revenue of $410.5 million for 2015, an increase of 9.6% from $374.6 million. Net cash position decreased from $143.8 million to $53.8 million in 2015. This is due to the company’s payments for investment properties amounting to $115.3 million and purchase of property, plant and equipment amounting to $34.7 million. The company is clearly embarking on an aggressive growth path as reflected in its investments in Raffles Holland V, RafflesHospital Extension, RafflesHospital Shanghai, and acquisition of International SOS (MC Holdings) Pte Ltd (MCH).
Pertaining to its business expansion, there may be execution risks as a result of the slower economic growth in Singapore and the region. However, this risk is mitigated by its healthy cash balances and continued operating cash flow. Thus, RMG’s investments in Raffles Holland V, RafflesHospital Extension, RafflesHospital Shanghai, and MCH can be supported well by its other business units, at least for the next couple of years.
Being the largest private medical group in Singapore, RMG enjoys an enviable investment moat as the medical profession is tightly regulated, 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.
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