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5 Reasons Raffles Medical Group Ltd Is on My Stock Watchlist

Raffles Medical Group Ltd (SGX: BSL) runs hospital and healthcare services in Singapore. It also has a network of clinics in five countries and 13 cities as well as two hospitals (one under development) in China.

Recently, I have put Raffles Medical onto my stock watchlist, a list that contains companies with characteristics of good businesses that I’d like to learn more about — and possibly invest in at some point.

I’d like to share with readers a few more reasons Raffles Medical qualified as an addition to my watchlist, added to the reasons on the previous list:

  1. Provision of necessary services
  2. Strong financial track record
  3. Owner-operator

Let’s look at the final two reasons.

Strong balance sheet

A growth company like Raffles Medical must be able to withstand the ups and downs of the business cycle in order to continue to grow over a long period of time.

To do so, it must have a strong balance sheet so 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 the bank and a reasonable net debt-to-equity ratio (not more than 100%).

Raffles Medical has maintained a strong balance sheet over the years. Let’s look at the latest numbers as of 31 December 2018. Borrowing stood at S$116.5 million, while its cash and cash equivalents stood at S$106.0 million as of 31 December 2018, giving it a net debt position of S$10.5 million. With an equity of S$817 million, the company’s gearing ratio is only 1%.

With its strong balance sheet and its strong operating cash-flow generation (S$91.5 million in FY2018), Raffles Medical is well positioned to sustain — and grow — its business over time.

Growth opportunities

There are many ways Raffles Medical can continue to grow its business in the future. Let’s explore a number of those.

Firstly, it can grow its patient numbers by utilizing the spare capacity of its existing facilities in Singapore. Next, it can expand its existing infrastructure to increase its capacity — 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. The latter opened its doors for business in January 2019, while the construction of the Shanghai hospital will be completed by the fourth quarter of this year.

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

Conclusion

The combination of all of these favourable reasons landed Raffles Medical a spot on my watchlist.

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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 recommends Raffles Medical Group Ltd.