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Would Raffles Medical Group Show Healthy Growth In Dividends Soon?

Healthcare services provider Raffles Medical Group (SGX: R01) has been a share with great historical performance. The company runs its flagship Raffles Hospital located at North Bridge Road in Singapore; a network of 78 multi-disciplinary clinics across the country; and a total of four other such clinics in Hong Kong and Shanghai, China.

In addition, Raffles Medical also provides health insurance for organisations and individuals, and has a consumer healthcare division that develops and distributions health- and wellness-related consumables.

Over the past 10-plus years since the start of 2004, Raffles Medical’s shares have appreciated by 772% to its current price of S$3.17 as compared to the Straits Times Index’s (SGX: ^STI) gain of only 72% to 3,039 points in the same period.

Of course, that share price growth did not come in a vacuum. It happened because Raffles Medical managed to deliver commensurate progress in its corporate performance. Just check out how its earnings per share have increased by more than 400% at a compounded annual growth rate of 20.5% since 2004:

Year

Earnings per share (Singapore cents)

2004

2.21

2005

2.74

2006

3.50

2007

7.36

2008

6.10

2009

7.30

2010

8.65

2011

9.50

2012

10.5

Last 12 months

11.3

Source: S&P Capital IQ

Partly as a result of Raffles Medical’s stable earnings growth, the company has also been able to dish out dividends which have grown rather steadily over the years.

Year

Dividends per share (Singapore cents)

2004

2.27

2005

2.72

2006

3.63

2007

2.50

2008

2.50

2009

3.00

2010

3.50

2011

4.00

2012

4.50

Source: S&P Capital IQ

In fact, from the table above, the company has been growing its dividend for four consecutive years starting from 2009. With Raffles Medical due to release its full year earnings for 2013 soon on 24 Feb 2014, can investors see any healthy growth in its dividends?

In the company’s 2012 annual report, it laid out its thoughts on how it views dividends under its Capital Management policy. In the policy, it’s stated merely that the “Board also monitors the levels of dividends to ordinary shareholders.” That can’t give investors much clues on how management actually thinks about the company’s dividends.

But here’s where the pay-out ratio – the percentage of earnings paid out as dividend – might be able to help in giving investors better clues on management’s thinking toward the level of dividends. Since 2004, we’ve seen the pay-out ratio fluctuate between a high and low of 65% and 34% respectively, though it has spent Raffles Medical’s last five completed financial years in a rather tight band between 40% to 43%.

Year

Pay-out ratio

2004

62%

2005

50%

2006

65%

2007

34%

2008

41%

2009

41%

2010

40%

2011

42%

2012

43%

Source: S&P Capital IQ

Over the past six months ended 30 June 2013, Raffles Medical’s revenue had grown by 12.1% year-on-year to S$168 million, with earnings increasing to S$27.9 million at an even higher pace of 16%. But despite that, the interim dividend declared by the healthcare provider for the period was 1.0 Singapore cents, the same amount paid out during the corresponding period in 2012.

In the third quarter of 2013, Raffles Medical continued its consistent growth in revenue and profitability, and reported revenue of S$253 million for the nine months ended 30 Sep 2013, up 10.7% year-on-year. Meanwhile, earnings had gone up by 14% to S$41.7 million.

In the company’s earnings release, it mentioned that its flagship Raffles Hospitalcontinues to grow with strong demand for all hospital services” and is “expected to contribute positively to the [company’s] performance.” That’s in addition to new branch openings for the company’s medical clinics as well.

So, from the looks of things, the company might see its earnings continue its upwards-momentum. And, if that happens, investors could well see higher annual dividends soon when the company reports its full-year results. That’s especially so if Raffles Medical manages to maintain its pay-out ratio in the same ball park as it did from 2008 to 2012.

But, there’s also some uncertainty on that front. Raffles Medical had made some major property acquisitions over the past two months to expand its healthcare services which would see it spend around S$430 million in total for the purchases as well as development of the real estate to suit its specific needs. In particular, part of the expansion might see Raffles Hospital’s existing floor space almost double from 28,605 square metres (sqm) to 49,217 sqm. This would further improve the company’s ability to meet the healthcare needs of the markets it serves.

With that much additional resources needed to fund its growth – the company’s balance sheet as of 30 Sep 2013 shows it carrying only S$146 million in cash with total debt of S$4.4 million – the company might even see the need to conserve as much as cash as possible by reducing dividends. But, that’s only conjecture at this point and investors would only know Raffles Medical’s dividend-picture for sure when it announces its 2013 results on 24 Feb 2014.

So while the company’s upcoming-dividends are a little shrouded, one thing’s very clear: Raffles Medical’s consistency in churning out profits as compared to its industry-peers like Healthway Medical Corporation (SGX: 5NG), Singapore Medical Group (SGX: 5OT), and Pacific Healthcare Holdings (SGX: P47).

Net Profit Margin

Year

Raffles Medical

Healthway Medical

Singapore Medical

Pacific Healthcare

2006

11.5%

4.85%

30.0%

6.33%

2007

21.0% 13.1% 33.0% 7.63%

2008

15.7% 11.8% 16.6% -14.4%

2009

17.3% 15.5% 5.17% -12.4%
2010 18.9% 3.28% 6.72%

-15.9%

2011 18.5% -81.0% -3.62%

-32.0%

2012 18.2% 9.29% -5.11%

-16.0%

Source: S&P Capital IQ

As a healthcare provider, Raffles Medical is unique among other healthcare providers in being able to deliver stable profit margins as seen from the table above. And, that’s a testament to its operational capabilities.

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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 writer Chong Ser Jing owns shares in Raffles Medical Group.