Should We Worry About Flat Profits At Raffles Medical Group?  

Raffles Medical Group Ltd (SGX: R01) reported third-quarter today. The period covered 1 July 2015 to 30 September 2015.

The healthcare services provider has two major divisions. The Healthcare Services Division houses medical clinics, health insurance and consultancy services. The Hospital Services Division covers the specialist medical services and its namesake hospital.

You can catch the previous earnings here. You can also read more about the group here.

Financial highlights

Here’s a rundown on the latest figures:

  1. Overall revenue for the third quarter rose by about 7.4% year on year to $101.5 million.
  2. Net profit, though, only inched up 1% compared to the same quarter last year. Profit for the period was $15.7 million, up from $15.5 million a year ago.
  3. Subsequently, earnings per share (EPS) for the third quarter was flat, coming in at 2.69 cents per share. The figure from a year ago was 2.71 cents per share.
  4. Elsewhere, cash flow from operations was a solid $16.6 million with capital expenditure clocking in at $4.3 million. The low capex gave the healthcare provider a healthy $12.3 million in positive free cash flow.
  5. As of 31 September 2015, the group had $89.5 million in cash and equivalents and $8.1 million in debt. This is a decrease from its net cash position of $119 million a year ago.

As with the previous quarter, Raffles Medical Group’s topline rose, but its profits and EPS lagged. The healthcare provider boasts a healthy balance sheet and free cash flow but a weaker balance sheet compared to a year ago.

Operational Highlights

For the third quarter, revenue from the Healthcare Services and Hospital Services divisions grew by 3.5% and 11.7%, respectively.

As mentioned earlier, profits lagged its topline growth. This was mainly due to additional costs from expanded operations at Raffles Hospital and Raffles Medical Centre Orchard (Shaw Centre).   

Elsewhere, the decline in its cash position on its balance sheet was due to the deposit paid for the acquisition of property ($41.7 million) and payments for investment properties under development ($58.9 million).

In other words, Raffles Medical Group is investing for its future.

Foolish investors may remember that Raffles Medical group is in the midst of expanding its flagship hospital, and developing a new facility at Holland Village. The Raffles Hospital Extension commenced in December 2014, and is expected to complete in the first half of 2017. Meanwhile, the Raffles Holland Village is on track to be completed in the first quarter of 2016.

The group is also expected to benefit from the acquisition of International SOS (MC Holdings) Pte. Ltd., through a joint venture. The networks of clinics, located in China, Vietnam and Cambodia, will be rebranded under Raffles Medical Group.

The management team commented:

The healthcare landscape will remain competitive and the more measured pace of economic growth in Singapore and the region may have a dampening effect on healthcare demand. However, the Group is positioned well for the future. The Group is closely monitoring market conditions, and will continue to be vigilant and responsive to new opportunities that may arise both regionally and globally.

Barring all unforeseen circumstances, the Directors are optimistic that the Group will continue to grow for the rest of 2015.

Foolish takeaway

At its opening price today of $4.40, Raffles Medical Group traded at around 36.5 times trailing earnings with a dividend yield of 1.25%.

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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.