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Raffles Medical Shares: Are They Cheap After Falling Over 10% This Year?

Raffles Medical Group Ltd (SGX: BSL) is a large private healthcare group with operations in many countries, including Singapore. With its closing share price at S$0.965 on Thursday, Raffles Medical’s shares have slumped around 12.3% and are languishing near their 52-week low.

Contrarian investors may be wondering if it’s worth buying Raffles Medical’s shares given the falling share price. Let’s find out.

Financial highlights

No investment analysis is holistic without investigating the company’s historical financial performance. From 2014 to 2018, the medical outfit’s revenue and net profit have grown steadily. Source: Raffles Medical Group Ltd 2018 annual report

Its top line improved by 6.9% per year, from S$374.6 million in 2014 to S$489.1 million in 2018. Meanwhile, net profit attributable to shareholders grew 1.2% yearly, from S$67.6 million to S$71.1 million during the same period.

In terms of dividend growth, Raffles Medical’s dividend per share has climbed at a faster rate than its earnings. Dividends increased by 8% per year from S$0.0183 per share in 2014 to S$0.0250 per share in 2018.

Growth ahead

As mentioned in my top stock picks for 2020, Raffles Medical has plenty of room to grow:

“In 2019, the group opened a new hospital in Chongqing, China, and is slated to open another one in Shanghai next year. Even though gestational losses are expected for the new hospitals, they have the potential to do well, considering the total addressable market in those two cities — many times larger than Singapore’s population.”

Chongqing holds plenty of promise. Dr Loo Choon Yong, Raffles Medical’s executive chairman, said the following in the company’s 2019 first-quarter earnings release:

“The opening of Raffles Hospital Chongqing marks the beginning of a bold new venture into the Chinese healthcare market of 1.4 billion people, and it will provide the Group with unlimited opportunities to expand its services.”

The expansion in China is on top of growing its services in Singapore through the extension of its flagship Raffles Hospital.

Valuation

At its current share price of S$0.965, Raffles Medical has a trailing price-to-earnings (P/E) ratio of 26.2 and a dividend yield of 2.6%. The P/E ratio of 26 is below its 10-year average of around 29; the following shows the company’s share price and P/E trend since September 2009:Source: S&P Global Market Intelligence (data as of 5 September 2019)

Based on relative valuation, Raffles Medical shares indeed look undervalued. The market seems to be implying that the China hospitals will not perform up to mark. However, if those hospitals’ performances surprise us post-gestation losses, it would be hard to buy Raffles Medical shares at a low valuation.

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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.