Raffles Medical Group Ltd (SGX: BSL) runs hospital and healthcare services in Singapore. It also has a network of clinics in five countries and thirteen cities. Furthermore, it has two hospitals (one under development) in China.
Year-to-date, Raffles Medical’s share price declined by 20% from its peak of S$1.20. Here, let’s try to understand what might have caused the decline.
There are many reasons that cause the stock price of a company to move. Generally, stock price movement is driven either by business performance or investor sentiments.
The former is related to how a business performs in a given period, looking at metrics like growth, margins, production and others. Here, the ultimate driver is profit. The latter is driven more by investors’ overall mood, which is described by emotional pairs such as greed and fear, optimistic and pessimistic, bull and bear, etc.
In this case of Raffles Medical, I believe both factors contribute to the recent decline in its share price.
Let’s start with the some numbers.
In the first half of 2019, Raffles Medical reported that revenue was up by 6.2% year-on-year to S$255.3 million. Yet, profit for the period fell by 13.5% to S$27.9 million. The decline in profit was driven mainly by gestation losses by Raffles Hospital Chongqing.
Clearly, the decline in net profit has impacted the company’s share price. On a positive note, Raffles Medical continued to grow its top-line.
Overall, I feel it’s not all that bad.
Nevertheless, the market clearly expected more from the company. This might explain the 20% decline in the healthcare provider’s share price (which is more than the 13.5% decline in net profit for the period).
Going forward, Raffles Medical needs to prove that it can ramp up the operation of its hospitals in China to improve its bottom-line. Moreover, it will also need to control its cost to improve its profitability. Failure to improve its profitability will likely put its share price in the firing line again.
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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 recommended the shares of Raffles Medical Group Ltd.