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Healthy Earnings At Raffles Medical Group

Ser Jing - Raffles Medical Group First Quarter Results, In the Pink of Health (pic) Healthcare provider Raffles Medical Group (SGX: R01) announced its third quarter earnings earlier in the morning and looked in the pink of health.

The company runs a network of family medical centres and private hospitals – the eponymous Raffles Hospital – in addition to providing health insurance. The company has a presence in Hong Kong and Shanghai, China as well with a total of four medical centres in the two cities.

The basic numbers

For the quarter, revenue came in 8% higher at S$85m compared to a year ago while profits grew 10.3% year-on-year to S$13.9m.

RMG has two main operating segments: Healthcare Services and Hospital Services. The former groups together its health insurance and general medical service operations and also includes other miscellaneous activities like the trading of pharmaceutical products and diagnostic equipment, and consulting services.

The latter, as its name suggests, is where Raffles Hospital’s numbers are reported. In addition, the segment’s activities also include the running of its medical laboratory and imaging centre business, and provision of specialised medical services.

The two operating segments together, accounted for almost 97% of RMG’s overall revenue last year.

In the three months ended 30 Sep, the company’s top-line had grown on the back of revenue growth of 9.4% and 5.7% respectively from Healthcare Services and Hospital Services.

Meanwhile, expenses grew at a slower pace despite being larger in absolute numbers. This resulted in RMG’s higher profits.

Operational highlights and the balance sheet

Raffles Hospital continues to grow in the quarter with strong demand for all hospital services. With the medical clinics, the company “saw an improved performance with new corporate clinics.”

RMG’s commercial property at 30 Bideford has been sold for S$118m on August 2013 after being acquired at S$92m on Feb 2011. The sale is expected to be completed by the end of October this year. The company initially had plans to convert the property into a specialist medical centre but it was rejected by Singapore’s authorities. That resulted in a sale as the property could no longer be used for the company’s core businesses.

The company’s balance sheet remains exceptionally strong and actually strengthened compared to a year ago. Cash on hand increased from S$88m to S$146m, while total debt decreased from S$19m to S$4.4m. The improvement in RMG’s balance sheet is a testament to its ability to generate actual cash from its operations.

What’s next for Raffles Medical Group

Back in September, the company also announced plans to co-develop a 300-bed international hospital in Shanghai, China with Shanghai Binjiang International Tourism Development Company. Nothing’s set in stone yet, but if it works out, it might provide a strong boost to the company’s growth in the future.

Back in Singapore, the company has been working with its team of consultants and local government authorities to extend the premises of Raffles Hospital, located along North Bridge Road near the Bugis MRT station. The extension “will enable [RMG] to build on and increase its clinical services and specialist offerings in the existing Raffles Hospital premise.”

That’s not all the upgrades the hospital’s seeing though. In a bid to maintain Raffles Hospital’s competitive edge, the company’s also busy acquiring advanced medical technologies, and refurbishing its existing facilities and specialist clusters.

However, competitive pressures on RMG would likely rise with a slew of new public and private hospitals being developed in Singapore and the region. In addition, a “more measured pace of economic growth” here and in China may dampen healthcare demand. That said, RMG’s directors “are optimistic” about the company’s continued growth for the rest of the year “barring unforeseen circumstances.”

RMG has been a solid market beater over the past five years ended 21 Oct 2013, gaining 370% compared to the Straits Times Index’s (SGX: ^STI) 78% return. That’s in no small part due to its solid profit growth that averaged 9.7% a year from 2007-2012, all the while maintaining a rock-solid balance sheet and healthy double-digit profit margins in excess of 15%.

The company has much better profit margins when compared to industry-peers like Healthway Medical Corporation Limited (SGX: 5NG). But, its margins could suffer if competition starts heating up, resulting in lower profit-growth or even declining profits. That could threaten its market-beater status going forward and is something investors should keep note of.

Valuation

Shares of RMG opened at S$3.12 for a 0.7% increase from last Friday’s close. At that price, the shares are valued at 28 times trailing earnings and carry a dividend yield of 1.4% based on its pay-out last year.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing owns shares in Raffles Medical Group.