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The Good And Bad That Investors Should Know About Raffles Medical Group Ltd’s Latest Earnings Update

Raffles Medical Group Ltd (SGX: BSL) is a private healthcare services provider with operations in Singapore and a number of other Asian countries. In Singapore, the company has its flagship Raffles Hospital. It is also developing two hospitals in the Chinese cities of Chongqing and Shanghai.

In late April, the company reported its 2018 first quarter earnings update. There are both positive and negative takeaways that investors may want to learn about. But first, let’s run through the company’s numbers.

The results

Here’s a condensed income statement from Raffles Medical for 2018’s first quarter:

Source: Raffles Medical 2018 first quarter earnings press release

We can see that Raffles Medical enjoyed a decent quarter, with slow growth in revenue, EBITDA (earnings before interest, taxes, depreciation, and amortisation), operating profit, PATMI (profit after taxes and minority interests), and diluted earnings per share.

The positives

Firstly, Raffles Medical had achieved higher revenue for the quarter, driven by top line growth in both its Hospital Services and Healthcare Services divisions. The former benefited from a higher local patient load, while the latter’s revenue growth was due to an increase in the local patient load, as well as a new contract providing air borders screening services.

Secondly, the company generated strong operating cash flow of S$24.0 million during the reporting quarter, up 31.8% from a year ago.

Thirdly, the healthcare services provider ended 2018’s first quarter with a net cash position of S$22.3 million (S$94.0 million in cash and equivalents, and total borrowings of S$71.7 million in total debt). That’s a strong balance sheet.

Lastly, the company is currently undertaking a number of projects that could grow its business over the mid to long term. For example, there’s the extension of its flagship Raffles Hospital which was completed on 22 January 2018 (the extension increased the hospital’s land area by around 80%). Then, there are also the aforementioned Chinese hospitals in Chongqing and Shanghai.

The negatives

Firstly, in the first quarter of 2018, Raffles Medical’s operating margin declined from 15.8% a year ago to 15.7%, mainly due to higher inventory, depreciation, and staff costs. The company had to spend to meet growing demand from patients.

Secondly, with all its various growth projects ongoing, Raffles Medical’s profit margins in the near future are expected to be compressed, as the projects will require time to scale and be profitable.

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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. The Motley Fool Singapore has a buy recommendation on Raffles Medical.