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Raffles Medical Group Ltd’s 2018 Second-Quarter Earnings: Lacklustre Growth in Net Profit

Raffles Medical Group Ltd (SGX: BSL) is one of the largest private healthcare groups in Singapore. Started in 1976, it now operates in various cities including Singapore, China, Japan, Vietnam, and Cambodia.

This morning, the healthcare company announced its financial results for the second quarter ended 30 June 2018.

Financial highlights

Revenue for the latest quarter rose 0.1% year-on-year to S$120.2 million. Revenue from the Healthcare Services division grew 5.4%, while revenue from the Hospital Services division fell by 2.3%.

The higher revenue from the Healthcare Services division was due to the addition of new corporate clients and a new contract to offer Air Borders screening services, which was awarded by the Ministry of Health and Civil Aviation Authority of Singapore. On the other hand, the lower revenue from the Hospital Services division was a result of softer than expected demand from foreign patients, which was offset by a slight increase in local patient load.

Quarterly profit attributable to shareholders inched up by 0.8% year-on-year to S$16.9 million. Net profit margin  for the 2018 second-quarter came in at 14.1%, a slight improvement from 14.0% clocked in a year ago.

Consequently, diluted earnings per share for the quarter was flat at 0.95 cents.

As of 30 June 2018, Raffles Medical had S$108.4 million in cash and equivalents, and S$91.6 million in total debt. This gives a net cash position of S$16.8 million. In comparison, at the end of last year, it had S$19.1 million in net cash. Despite the lower net cash position for the latest quarter, the healthcare outfit’s balance remains strong.

Operating cash flow for the reporting quarter fell 28.3% to S$18.9 million mainly due to working capital changes. Raffles Medical’s capital expenditure increased from S$2.8 million to S$7.8 million. As a result, free cash flow for the 2018 second-quarter was S$11.1 million, down from S$23.6 million a year ago.

Raffles Medical’s strong operating cash flow allowed it to support its investments in Raffles Hospital Extension, Raffles Hospital Chongqing and Raffles Hospital Shanghai. The investments and capital expenditure for business expansion were S$16.5 million for the latest quarter. A year ago, the figure stood at S$56.3 million.

An interim dividend of 0.5 cent per share was declared, same as the previous year.

Looking ahead

The new extension at Singapore’s Raffles Hospital, the Raffles Specialist Centre, started operations on 22 January 2018. To support further growth at Raffles Hospital, the company has begun refurbishment works for its outpatient clinics and inpatient wards in the second quarter of 2018. The facilities will open in the third quarter of this year.

At Raffles Hospital Chongqing, construction and purchasing of equipment are progressing according to plan. Recruitment of international and Chinese doctors and senior hospital management staff has started, and the “response has been positive”. The hospital is slated to open in the fourth quarter of 2018.

Raffles Hospital Shanghai is expected to open in the second half of 2019. Construction is also progressing well there.

The Foolish takeaway

It was not a great second quarter for Raffles Medical as revenue and net profit did not grow much. However, one quarter does not make a trend. The company is investing a lot of money in expanding its business in both Singapore and China, and it will take a few years for the investments to bear fruits.

Raffles Medical shares ended Friday at S$1.10 apiece. The company is now valued at around 28 times its trailing earnings and has a trailing dividend yield of 2%.

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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 Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Raffles Medical Group Ltd.