For Investors: A Quick Overview of The Cost Structure of Singapore O&G Ltd

Singapore O&G Ltd (SGX: 41X) is a relatively new healthcare company in Singapore’s stock market given that it was listed only in June 2015.

Since the close of its trading debut, the healthcare services provider’s stock price has jumped by 114%. The company has three main operating business segments at the moment, namely, Obstetrics and Gynaecology, Cancer-related, and Dermatology (its fourth arm focusing on Paediatrics was set up just earlier this month).

Singapore O&G’s strong stock market performance prompted me to take a closer look at its business. In this article, I want to share one thing I learnt: Its cost structure.

Here’s the company’s income statement for 2015 and 2016:

Singapore O&G income statement 2016
Source: Singapore O&G 2016 annual report

There are a few observations we can draw:

1. The total operating cost for the company accounted for around 64% of total revenue in 2016.

2. Employee benefits is the largest cost category, representing nearly 60% of Singapore O&G’s total operating cost.

3. Other than consumables and medical supplies used (which represent about 23.5% of 2016’s operating cost), the majority of the other costs – such as employee benefits and depreciation of plant and equipment – are generally fixed in nature.

From this, we can surmise an educated guess that roughly 70% or so of Singapore O&G’s operating cost is fixed in nature.

As fixed costs generally change little with increases in the volume of services rendered, we may expect the profitability of the company to grow at a faster rate than its revenue if it can increase the number of patients it handles.

By understanding Singapore O&G’s cost structure, investors can gain a clearer perspective on the company’s future profitability.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.