There are around 700 companies listed on the stock exchange in Singapore. Of those, there are a number of companies that have similar business operations. It is sometimes difficult to determine which company in a particular industry is better than its peers.
To make your life simpler, I will do some quick-and-dirty comparisons between two companies operating in the healthcare sector, Raffles Medical Group Ltd (SGX: BSL) and Singapore Medical Group Ltd (SGX: 5OT), to determine which might give you a better bang for your buck.
Introduction of the companies
Raffles Medical Group (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 two million patients.
Meanwhile, Singapore Medical Group (SMG), which was started in 2005, is a primary healthcare provider with a network of more than 20 medical specialties. Its clinics are located in places such as Paragon, Mount Elizabeth Novena Specialist Centre, Parkway East Medical Centre, and Gleneagles Medical Centre.
The table below shows the market capitalisation and revenue for the two firms. Market capitalisation is as of the closing share prices on 4 March 2019.
Do note that all figures quoted in the tables that follow are for the full year ended 31 December 2018 for both companies, 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, 14.5 cents were generated as profits, but for SMG, every dollar of revenue gave slightly more than 15 cents in profits. This shows that SMG is more efficient at converting sales into actual profits. SMG has a higher ROE than RMG too.
Round 2: Growth
In the second round, we will compare the compounded annual growth rate 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.SMG has trounced RMG in both revenue and net profit growth. However, SMG does not pay a dividend, and therefore, does not have dividend growth to speak of.
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 4 March 2019.
SMG has a much lower PE and PS ratio compared to RMG. However, income investors may not prefer SMG as it does not pay a dividend.
The Foolish bottom line
The final score is 3-0 to SMG, as it has triumphed over RMG in all three rounds of profitability, growth, and valuation.
However, we have yet to look at other important aspects of the companies, such as their stability of earnings, balance sheet strength, ability to generate free cash flows, management ability, and future growth prospects. Potential investors interested in the two companies should conduct deeper research before investing their money. Who knows, RMG may have better growth prospects than SMG due to its broader geographical reach. This simple exercise covers the basics and would help to take some heavy-lifting off your back though.
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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.