Raffles Medical Group Ltd. – 3 Key Takeaways from Its Latest Earnings Report

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Healthcare services provider Raffles Medical Group (SGX: R01) handed in its second quarter earnings report yesterday morning. As of the time of writing (11:15 am, 30 July 2014), the market doesn’t seem too enamoured with the company’s latest figures as its shares are now down by 1.3% to S$3.90 from Monday’s close at S$3.95.

Here are three key takeaways from Raffles Medical Group’s financials for the second quarter of 2014. Take a look and see if you agree with the market’s assessment.

1. Financial performance

For the three months ended 30 June 2014, Raffles Medical Group’s revenue increased by 6.6% year-on-year to S$92.6 million. The top-line growth flowed to the bottom-line, which grew 8.5% S$15.6 million compared to a year ago.

Cash flow from operations increased by 43% from S$27 million a year ago to S$38.6 million. With capital expenditures of S$4.9 million in the second quarter of 2014, Raffles Medical Group managed to generate free cash flow of S$33.7 million in the period.

The company’s balance sheet remains rock solid, albeit slightly weaker compared to the end of 2013. Back then, Raffles Medical Group had cash of S$265.9 million and total debt of just S$4.8 million. As of 30 June 2014, the company’s balance sheet had cash of ‘just’ S$130.6 million and debt of S$5.2 million. The big drop in cash was primarily due to the purchase of property, plant, and equipment (more on that later) for close to S$190 million which took place in the six months between 31 December 2013 and 30 June 2014.

In pleasing news for shareholders, the company had declared a 50% hike in interim dividends from S$0.01 per share a year ago to S$0.015 per share.

2. Operational highlights

The bulk of Raffles Medical Group’s top-line growth had been due to higher patient load in the company’s network of clinics (there are more than 70 clinics island-wide). According to the company, “[o]ther contributory factors include the securing of new corporate contracts both locally and overseas and the addition of more specialists to the hospital.” Raffles Medical Group’s health insurance arm also saw higher sales in the quarter.

Raffles Medical Group’s flagship Raffles Hospital, located along North Bridge Road in Singapore,also saw the addition of state-of-the-art medical technology recently with the introduction of its new nuclear medicine centre on 21 July 2014.

The centre houses the Siemens mCT flow Positron Emission Tomography (PET), which is the first installation of its kind in Southeast Asia. The new centre also contains the “top of the line” Siemens Skyra 3T Magnetic Resonance Imaging (MRI) modality. The company is of the opinion that nuclear medicine centre, with its technologies, will “enhance the hospital’s cancer diagnostics and treatment capability and concurrently increase its capacity for advanced imaging modalities.”

3. Growth outlook

There are two key prongs to the company’s long-term growth strategy and that’s the extension of its Raffles Hospital and the construction of a medical/retail hub in Holland Village. That’s also where the aforementioned S$190 million was spent on – the company had to acquire the land needed.

Currently, Raffles Medical Group is finalising the development plans for Raffles Hospital which can potentially add 220,000 square feet to the existing 300,000 square feet of gross floor area for the hospital.

As for the medical/retail hub, construction for the 5-storey commercial building “is in progress”. The property will have 65,000 square feet of gross floor area of which 9,000 have been earmarked for Raffles Medical Group’s medical and specialist services. The development would also have DBS Bank as one of its larger tenants in addition to other “upmarket retail as well as reputable food and beverage tenants.”

Moving on to slightly dour news, the company also warned about a possible dampening in the general demand for healthcare due to the “more measured rate of economic growth in Singapore and the region.” But, it added that the ageing population in Singapore and the region “will continue to increase the overall demand for reliable curative healthcare services.”

Dr. Loo Choon Yong, Executive Chairman of Raffles Medical Group, gave some brief comments on the company’s future in the earnings release:

“Quality healthcare is always in demand. We are investing in the hospital expansion and the Holland Village development to comprehensively serve the needs of our patients and corporate clients over the long term.”

At its current price of S$3.90, Raffles Medical Group’s valued at 25 times trailing earnings.

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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.