There are around 700 companies listed on the stock exchange in Singapore. Out of those, there are a number of companies that have similar business operations. It is sometimes hard to determine which company in a particular industry is better than its peers.
In this article, we will make some quick-and-dirty comparisons between two companies operating in the healthcare sector, Raffles Medical Group Ltd (SGX: BSL) and Health Management International Ltd (SGX: 588), to determine which might give you better bang for the buck.
Introducing the “Players”
Raffles Medical Group, or RMG, is the largest integrated private healthcare group in Singapore. Established in 1976, it now has a presence in 13 cities across Asia, serving more than 2.2 million patients and 6,800 corporate clients.
Meanwhile, Health Management International, or HMI, is a regional private healthcare provider with a presence in Singapore, Malaysia and Indonesia. Currently, it owns two tertiary hospitals in Malaysia, a healthcare training centre in Singapore, and a network of representative offices in those three countries. The hospitals in Malaysia are Mahkota Medical Centre and Regency Specialist Hospital.
The table below shows the market capitalisation and revenue for the two firms. Market capitalisation is as of the closing prices on 12 December 2017.
Do note that all figures quoted in the tables that follow are for the full year ended 31 December 2016 (FY2016) for RMG and for the full year ended 30 June 2017 (FY2017) for HMI, unless otherwise stated.
Round 1: Profitability
In the first round, we will analyse the profitability of the companies in terms of net profit margin and Return on Equity (ROE). The ROE figure reveals how efficient the management is in turning every dollar of shareholders’ capital into profits.For every dollar of revenue created by RMG, around 15 cents were generated as profits, but for HMI, every dollar of revenue only gave close to 5 cents in profits. This shows that RMG is more efficient at converting sales into actual profits. However, HMI has a slightly higher ROE than RMG.
Winner: No clear winner, but RMG seems superior with its far higher net margin.
Round 2: Growth
In the second round, we will compare the compounded annual growth rate (CAGR) of revenue, net profit and dividend of the two firms for the past five financial years. Companies that can grow their sales and profits steadily over time should also see their share price rise.
HMI has trounced RMG in all aspects, except for dividend CAGR. HMI did not pay dividends every single year for the past five years.
Round 3: Valuation
As Foolish investors, it is essential to focus on the value of the business and not on the daily changes in the stock price.
We will now compare the price-to-earnings (PE) ratio, price-to-sales (PS) ratio and dividend yield of the two businesses. The values below are as of the closing prices on 12 December 2017.
RMG has a lower PE ratio and higher dividend yield than HMI. Both have the same PS ratio of 3.9 though.
The Foolish Bottom Line
Final Score: 1-1. It’s a tie, but it seems like RMG slightly edges out HMI due to its higher net profit margin.
However, we have yet to look at other important aspects of the companies such as the balance sheet strength, free cash flow situation, future growth areas, and so on. Potential investors interested in RMG should research more on the company before investing their money. This simple exercise would help to take some heavy-lifting off their back though.
For more (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. Motley Fool Singapore contributor Sudhan P owns shares in Raffles Medical Group Ltd.