MENU

3 Reasons To Like Raffles Medical Group Ltd From The Perspective Of A Growth Investor

Growth investors are investors who aim to invest in companies that are able to grow their businesses at high rates in the future.

In this article, I would like to point out three reasons why growth investors might find Raffles Medical Group Ltd (SGX: BSL) an interesting candidate for further research.

Historical growth rates

Growth investors tend to be interested in companies that possess a good historical track record of growth, and the potential to continue posting a high growth rate in the future. In the case of Raffles Medical, it has demonstrated a positive growth track record.

First of all, revenue has grown from S$312 million in 2012 to S$478 million in 2017, up by a compounded annual growth rate (CAGR) of 8.9% during the period.

Next, operating profit has grown from S$66 million in 2012 to S$80 million in 2017, up by a CAGR of 3.9% during the period.

Putting both factors together, we can see that Raffles Medical’s track record of growth has been positive in the last five years.

Growth prospects

There are many ways Raffles Medical can continue to grow its business in the future.

Firstly, it can grow its patient numbers by utilising the spare capacity of its existing facilities in Singapore. Next, it can expand its existing infrastructure to increase its size – such as its recent extension of its flagship Raffles Hospital in Singapore. Furthermore, it can also open up new facilities – such as clinics to cater to more patients in Singapore.

Another major growth driver for the company is its recent expansion into China through two major projects – a 400-bed international general hospital in Shanghai and a 700-bed international tertiary general hospital in Chongqing.

In short, there are still plenty of opportunities for the company to grow.

Balance sheet strength

A growth company must be able to withstand the ups and downs of its business cycle to continue to grow over an extended period.

To do so, it must have a strong balance sheet so that it can 1) satisfy its existing operational and financial requirements, and 2) invest in future growth.

Generally speaking, a company with a strong balance sheet will have plenty of cash in its bank and a reasonable net-debt-to-equity ratio of not more than 100%.

As of 31 March 2018, Raffles Medical had S$94.0 million in cash and cash equivalents, with S$71.7 million in total debt, giving it a net cash position. Therefore, its net-debt-to-equity ratio is 0%.

The Foolish takeaway

From the above, we can see that Raffles Medical has a strong track record of growth, favourable growth prospects and a strong balance sheet.

Though the company has positive growth traits, investors should also consider the other side of the equation. Stay tuned for more in the coming days, as I’ll be sharing the negative traits of Raffles Medical from the perspective of a growth investor.

There are 28 surprising and important things we think every Singaporean investor should know--and we've laid them all out in The Motley Fool Singapore's new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge--simply click here now to claim your copy.

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. Motley Fool Singapore has a recommendation for Raffles Medical Group Ltd.