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Healthy Growth for Raffles Medical Group In 2013

Healthcare provider Raffles Medical Group (SGX: R01) reported its full-year results for 2013 earlier today and saw healthy growth across its top- and bottom-line.

The company runs the eponymous Raffles Hospital; a network of 78 multi-disciplinary clinics across Singapore; four medical centres in total in Hong Kong and Shanghai, China; and also provides health insurance in addition to developing and distributing health supplements, vitamins, nutraceuticals, and medical diagnostic equipment.

Some basic numbers

For the 12 months ended 31 Dec 2013, Raffles Medical Group’s revenue grew 9.4% year-on-year to a record high of S$341 million while its profits jumped by 49.1% from S$56.8 million to S$85.3 million.

The company’s revenue growth was driven by “more specialist consultants, higher patient load, and greater patient acuity [i.e. a higher intensity of medical care required by patients]” in addition to seeing more contributions from its overseas operations. Raffles Medical Group also provided more healthcare insurance services during the year, which was another factor in the company’s improvement in revenue.

Raffles Medical Group’s huge increase in profit was mainly due to a gain of S$20.4 million that was recorded when it sold a property in Singapore located at 30 Bideford for S$118 million back in August 2013. The property was initially purchased for S$92 million in Feb 2011 for the purpose of converting it into a specialist medical centre. But, the conversion plans were rejected by Singapore’s authorities, thus leading to the sale.

If the one-off gains (including a revaluation of the company’s properties) were stripped away, Raffles Medical Group’s pro-forma profits for 2013 would fall to S$61 million instead and represent a still-healthy 14.5% increase over the S$53.3 million earned in 2012 after accounting for similar revaluation gains.

Meanwhile, the company’s operating cash flow grew by 2.4% from S$69.5 million in 2012 to S$71.2 million. The discrepancy between Raffles Medical Group’s profits and operating cash flow happened because the cash received from the sale of the property at 30 Bideford is classified as an ‘investing’ and not operating activity.

Raffles Medical Group had also proposed a final dividend of S$0.04 per share, bringing its full-year dividend for 2013 to S$0.05 per share. That’s 11.1% higher than the dividend of S$0.045 per share paid out in 2012.

Operating highlights and the balance sheet

Raffles Hospital had “performed well in 2013 registering strong growth in patient numbers and revenue.” The hospital had also undergone a recent refurbishment of its external facade and internal facilities which could help the company maximise the hospital’s existing space for growth. The company also has plans to grow Raffles Hospital, which will be discussed shortly.

Elsewhere, Raffles Medical Group had opened a number of new medical centres in Singapore during the year in retail locations like Whitesands, Bedok Mall and Jurong Point while increasing its corporate client portfolio for its medical centre and clinical services.

The company’s insurance operations also received a marketing overhaul during the year with a new marketing model called “RafflesOne”. It help highlights what Raffles Medical Group can provide for corporate clients in the area of healthcare insurance, namely, a “fully integrated, seamless healthcare service and healthcare financing proposition… in the area of Employee Benefits Solution.” The “RafflesOne” model seems to be working, as the company has managed to snag “several major accounts since its launch.”

Raffles Medical Group ends 2013 with a much stronger balance sheet compared to 2012 as its net cash position (total cash minus total debt) has more than tripled from S$82.7 million to S$261 million. Besides giving the company more financial stability, the improvement of its balance sheet also gives Raffles Medical Group stronger financial muscle to power its growth plans for Raffles Hospital.

What’s next for Raffles Medical Group

In late Jan 2014, the company announced the acquisition of a plot of land adjacent to Raffles Hospital for the purpose of expansion. The acquisition could potentially mean an increase of the hospital’s existing gross floor area from 28,605 square metres (sqm) to 49,217 sqm.

According to the company’s commentary in the earnings release, the expansion “will allow for development of new medical centres, including a number of centres of excellence, a healthcare training institute, clinical research, as well as adding more beds in service.” And, more importantly, the upgraded premises “will offer substantial opportunities for the hospital’s expansion and growth over the next 10 years.”

Meanwhile, Raffles Medical Group had also completed the purchase of a 3-storey office building located in the vicinity of Holland Village at 100 Taman Warna, Singapore. This particular acquisition was first made known in December and would eventually see the company redeveloping the property into a “5-storey commercial building consisting of medical clinics, retail shops, restaurants and carpark.” The redevelopment works are expected to be completed in 2016.

The total costs for the purchase and development of the two acquisitions have been estimated to be around S$430 million based on previous information provided by the company. This is where stronger financial muscle would be important as having a larger cash balance on hand would mean that Raffles Medical Group has to take on lesser leverage to expand its operations.

Dr Loo Choon Yong, executive chairman of Raffles Medical Group, managed to sum up the company’s prospects succinctly in its earnings release today: “These are exciting times for Raffles. Other than the projects in Singapore, we are expanding our operations in China. These translate into a pipeline of growth for [Raffles Medical Group] for many years to come.”

Valuation

The company’s shares are up 0.3% to S$3.32 at the time of writing (24 Feb 2014, 11:25am) even as the Straits Times Index (SGX: ^STI) remains flat at 3,101 points. At that price, shares of the healthcare provider are valued at 22 times trailing earnings and carry a historical dividend yield of 1.5%, which is a fair bit lower than the Straits Times Index’s yield of around 2.8%.

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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.