What Investors Should Know About Raffles Medical’s Latest Earnings

Raffles Medical Group Ltd. (SGX: R01) reported its third-quarter earnings report yesterday. The reporting period was for 1 July 2014 to 30 September 2014. The healthcare services provider has two major divisions. The medical clinics, health insurance and consultancy services fall under the Healthcare Division, while the specialist medical services and namesake hospital is housed under the Hospital Services Division. You can catch the second quarter earnings here and read more about the group here.

Financial Highlights

For the third quarter of 2014, Raffles Medical’s revenue rose by 11.1% compared to the same quarter last year. Profit followed suit with a 11% year on year increase.

However, cash flow from operations fell 65% from $25.3 million a year ago to $8.8 million. When put together with the capital expenditure of $10.4 million, free cash flow was a negative $1.6 million for the quarter.

The balance sheet though remained sound, with $124.5 million in cash and equivalents as well as $5.6 million in debt as of 30 September 2014. This compares with the $130.6 million in cash and $5.2 million on 30 June 2013. The decline was attributed to higher capital spend and the payout of an interim dividend worth $8.5 million during the quarter.

Business Highlights

Majority of the revenue growth came from the Healthcare Services segment, which increased 16.4% year-on-year. This increase was attributed to higher patient load, a larger network of clinics, and increased provisions of health insurance services. The Hospital Services Revenue grew at a slower 7.3% rate in this timeframe. Much of the growth came from the addition of new specialist consultants to the group, and higher inpatient admissions. The Hospital Services segment traditionally makes higher profit margins, therefore is worth keeping an eye on.

Forward looking, the group reported that it has finalized its development plans for the 220,000 square feet adjacent extension of Raffles Hospital. Ground-breaking is expected to commence by the end of this year. This would be a significant expansion from the current 300,000 square feet of gross floor area.

Furthermore, the construction of the 5-storey commercial building for Raffles Holland Village is in progress. Together with the extension of its namesake hospital, these two projects may be the main drivers for future growth. Dr Loo Choon Yong, Executive Chairman of Raffles Medical provided a brief comment on the company’s future in the earnings release:

“Our two upcoming projects will enable the Group to enhance the level of care and services to our patients and clients. Both these developments will be medical landmarks and a testament to the quality healthcare that Raffles is known for.

On the flipside, the group commented that the shortage of healthcare manpower remains a challenge for all healthcare operators in Singapore. In view of the projects above, Raffles Medical is driving a specialist recruitment exercise to “progressively build the breadth and depth of hospital capabilities”.

Foolish Take away

At its closing price yesterday of $3.93, Raffles Medical traded at around 24 times trailing earnings with a dividend yield of 1.4%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.