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Better Buy: Raffles Medical Group Ltd vs Singapore O&G Ltd

Healthcare companies are generally considered to be defensive stocks since their services are needed in both good and bad times. Given their defensive nature, it’s not surprising to see that investors are attracted to them, and if you’re looking for investment ideas in this sector, you should keep reading.

Below, I’m comparing two healthcare companies, namely Raffles Medical Group Ltd (SGX: BSL), and Singapore O&G Ltd  (SGX: 1D8).

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The business

Besides its flagship hospital in Singapore, Raffles Hospital, Raffles Medical Group also runs medical centres and clinics all over our Garden City and in 14 cities across China, Japan, Vietnam, and Cambodia. The company’s international business includes a hospital in Chongqing, China, which opened in January 2019, and a hospital in Shanghai, China, that is under construction.

Singapore O&G provides specialist medical services in Singapore in four key areas, namely, obstetrics & gynaecology, women’s cancer, paediatrics, and dermatology.

The showdown: Recent growth

I’m going to start my head-to-head with a comparison of the two companies’ recent growth rates. For 2018, Raffles Medical reported that its revenue improved by 2.4% to S$489.1 million. Operating profit for the year did better with a 5.2% increase to S$84.2 million, and consequently, net profit grew 3.1% to S$70.8 million. Overall, it was a stable performance from Raffles Medical.

Singapore O&G enjoyed a 16.0% increase in revenue to S$34.7 million in 2018. Operating profit for the year jumped 38.3% to S$13.7 million, but net profit grew by only 7.5% to S$3.8 million. Singapore O&G experienced an impairment charge of S$2.8 million and a non-recurring gain of S$0.9 million during the year; if these items were excluded, the company’s 2018 net profit would be S$11.0 million, an impressive 29.4% increase from 2017.

So, it’s clear that Singapore O&G is ahead of Raffles Medical when it comes to recent growth rates.

The showdown: Return on invested capital (ROIC)

Now I’m looking at the ROICs of both companies. High-quality businesses tend to have high ROICs, while the reverse is true, too — a low ROIC is often associated with a low-quality business. You can learn more about the ROIC metric and why it’s useful when researching potential investments.

Here’s a table showing the important numbers in deriving the ROICs for Raffles Medical and Singapore O&G:

Source: Raffles Medical and Singapore O&G earnings updates

Singapore O&G’s ROIC for 2018 turns out to be unusual since it’s a negative number. But there’s a good reason: The company is funding its tangible capital employed with trade payables, which are typically interest-free “loans” from suppliers. Moreover, Singapore O&G has significant goodwill on its balance sheet (S$24.1 million at end-2018) as a result of a past acquisition (mainly for the Dermatology segment). I usually exclude goodwill when calculating a company’s ROIC, but I think it’s relevant to include goodwill in Singapore O&G’s case to reflect the capital light, acquisitive nature of the company’s business model.

With goodwill included, Singapore O&G’s adjusted ROIC for 2018 becomes 58.9%, which is still considerably higher than Raffles Medical’s ROIC of 10.7%. Singapore O&G’s higher ROIC makes it look like the higher-quality business since it indicates that the company is making better use of investors’ capital compared to Raffles Medical.

The showdown: Valuation

The last thing I’m going to compare between the two healthcare companies is their valuation. I’m going to focus on three valuation metrics: The price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and dividend yield.

Source: SGX Stock Facts

Singapore O&G looks like the cheaper stock compared to Raffles Medical thanks to its lower P/E ratio and higher dividend yield.


Singapore O&G emerges as the easy winner by besting Raffles Medical in all three showdowns, thanks to strong recent growth, a high ROIC, and a lower valuation.

But it’s worth noting that the information presented here is by no means a recommendation to take any action on the stocks mentioned. Instead, they should be viewed only as a useful starting point for further research.

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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 recommendations for Raffles Medical Holdings Ltd and Singapore O&G Ltd.