As most portfolio managers will prescribe, it is useful to include a few defensive stocks when building your investment portfolio. A defensive stock is one that can thrive even in economic downturns. Not only do defensive stocks provide stability to your portfolio, but they also act as a hedge during bear markets. The healthcare industry, for instance, is considered a defensive industry as healthcare is an integral part of everyday life. People have to spend on healthcare regardless of the economic conditions. As such, having healthcare stocks to anchor your portfolio can be a good idea. With that said, I…
As most portfolio managers will prescribe, it is useful to include a few defensive stocks when building your investment portfolio. A defensive stock is one that can thrive even in economic downturns. Not only do defensive stocks provide stability to your portfolio, but they also act as a hedge during bear markets. The healthcare industry, for instance, is considered a defensive industry as healthcare is an integral part of everyday life. People have to spend on healthcare regardless of the economic conditions.
As such, having healthcare stocks to anchor your portfolio can be a good idea. With that said, I did some research on healthcare stocks in Singapore and found two stocks that have a stellar track record and a long runway for growth.
Company 1: ISEC Healthcare Ltd (SGX:40T)
Listed in late 2014, ISEC Healthcare provides private ophthalmology services through its network of four clinics in Malaysia and one in Gleneagles Hospital in Singapore. Besides its core business of specialist eye care services, the group also recently acquired four general practitioners clinics in the heartlands of Singapore to expand its services and to increase its referral program to its core eye specialist business.
The strategy has worked well. In 2017, the company reported a 20% jump in revenue and a 22% gain in net profit. It also started 2018 well as revenue for the first quarter increased 14%, while profit grew 22% year-on-year.
This was attributed to higher patient numbers in its existing clinics, likely due to increased referrals from its newly acquired network of clinics.
The group has also mentioned a few times that it intends to expand its geographical footprint regionally to China and Vietnam where the market for ophthalmological services is much larger than both Malaysia and Singapore.
With its clean balance sheet of no debt and S$27 million in cash, the company certainly has the financial muscle to make more acquisitions or to set up a clinic in their target markets. Operating cash flow is also consistently increasing along with its net profit. This can provide the company with the finances to make more acquisitions or to reward shareholders through dividends or share buybacks.
Also, at a stock price of S$0.29 (at the time of writing), the company is valued at just 17.7 times its annualised earnings and 2.23 times its book value. On top of that, its shares have a trailing dividend yield of 4.1%, the third highest yield among healthcare stocks in Singapore.
Despite its relative youth, the company’s clean balance sheet, strong cash flows and consistent earnings growth make this company an attractive proposition.
Company 2: Raffles Medical Group (SGX: BSL)
Raffles Medical is the second largest healthcare operator listed in Singapore. It owns a network of general practice clinics and one hospital in Singapore. The group has perhaps one of the best track records of growth in Singapore.
It began from humble beginnings back in 1976 with just two clinics. Since then, the group has grown consistently over the years and now has a network of clinics located in Singapore, China, Japan, Vietnam and Cambodia.
The group has also initiated plans for two new hospitals in China. They are a 700-bed hospital in Chongqing and a 400-bed hospital in Shanghai. It also added a 20-storey extension to its current hospital in Singapore in January this year, expanding its specialist services, and increasing its bed capacity and clinic space.
Remarkably, Raffles Medical has achieved this tremendous growth mostly through its cash earned from operations. In 2017, the company generated around S$83 million in operating cash flow.
Despite massive investments needed for the two new hospitals, Raffles Medical, as of 31 March 2018, employed only S$72 million of debt and had a cash hoard of S$94 million, giving it a net cash position of S$22 million.
Potential investors should also be pleased to note that shares of the company have taken a major beating in the market over the last few years. Shares are trading at just S$1.01 per piece at the time of writing, almost 30% below its peak. Market participants have been worried about the stagnating bottom line growth over the last few years due to market saturation in its core market in Singapore. However, I feel that many have not fully accounted for the potential earnings upside once the two China hospitals and hospital extension in Singapore come into play.
Raffles Medical shares currently have a price-to-earnings ratio of 25.2, a price-to-book ratio of 2.4 and a dividend yield of 2.2%. These are attractive valuations in my book, and long-term investors who are willing to see out any teething issues in its new hospitals will most likely be rewarded.
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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. The Motley Fool Singapore contributor Jeremy Chia own shares in Raffles Medical Group.