Raffles Medical Group Ltd is at a Multi-Year Low: What Could Have Caused the Plunge?

Raffles Medical Group Ltd (SGX: BSL), or RMG for short, is one of the largest private healthcare groups in Singapore. Established in 1976, it now has a presence in 13 cities across Asia, serving more than 2.2 million patients.

The healthcare outfit might have cured many patients, but many investors may be nursing a wound after the share price took a huge hit.

Currently, shares of RMG are going at S$1.05 apiece, just a bit higher than the year’s lowest price of S$1.025. The last time the shares traded this low was in March 2014. From the most recent all-time high of S$1.675 seen in May 2016, the current share price translates to a plunge of around 38%.

In comparison, the Singapore stock market benchmark, the Straits Times Index (SGX: ^STI), is up around 16% from May 2016 to date.

The question on many investors’ minds would be: What has caused RMG’s share price to fall off a cliff?

One of the reasons for the slump is the slowing growth in the recent quarters.

For the first quarter of 2017, revenue came down 1.7% year-on-year to S$114.9 million, but net profit managed to climb up by 0.1% to S$15.5 million. Moving on to the second quarter, revenue rose 1% year-on-year to S$120.1 million while net profit increased 0.5% to S$16.8 million.

For the six months ended 30 June 2017, revenue declined 0.3% year-on-year to S$235 million, but net profit rose 0.3% to S$32.3 million.

Management cited that going forward, “increasing competition from regional countries for foreign patients” may affect demand for healthcare services.

The day after RMG reported its results for the second quarter and first half of 2017, at least three brokerage houses downgraded their ratings for the company. One of the main concerns was start-up and operating costs from the two new hospitals that are set to open in China would drag down earnings.

The healthcare group was also priced for growth.

For the full year ended 31 December 2016 (FY2016), RMG was trading at trailing price-to-earnings (PE) ratio of 61 times. In FY2015, it was going at 35 times its earnings, and in FY2014, it was trading at a PE ratio of 30.

At such astronomical valuations, if a company does not deliver the expectations of shareholders, its share price has to give way. That is exactly what happened at RMG.

For (free!) stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Raffles Medical Group Ltd. The Motley Fool Singapore contributor Sudhan P owns shares of Raffles Medical Group Ltd.