Is Raffles Medical Group a Buy Right Now?

Here is what you exactly need to know about going deep into Singapore's major healthcare giant -- Raffles Medical Group.

In 1997, Raffles Medical Group became the first SESDAQ-listed healthcare company. Then three years later in the Singapore Exchange mainboard.

It was a journey of tenacity, as two good friends — Dr. Loo Choon Yong and Alfred Loh, kick-started two clinics in downtown Singapore, 1976. Their goal? To provide medical services to companies.

By 1989, the duo owned five clinics. And beyond that, Dr. Loo and Loh springboard themselves into the HDB areas, opening its first neighbourhood clinic in Bishan.

By 1997, Raffles Medical Group had specialized (children’s, physiotherapy) clinics, operating theatres, 24-hours travel clinics and hospitals under their belt. 

Today, Raffles Medical Group is a major S$2 billion healthcare provider.

It has a full suite of surgical centres, specialist clinics and medical laboratories. You don’t only find them in Singapore, but across the big cities in Asia — China, Japan, Vietnam and Cambodia. 

I find Raffles Medical Group a fantastic business — it has an excellent balance sheet, strong free cash flow and generates a healthy return on its equity (ROE). 

All of these contribute to its solid cash pile of S$203 million. And that it can use to continue to grow its business in Asia. 

Read about my other write-ups on Singapore-listed healthcare providers here.

How to profit from Raffles Medical Group

But more importantly, I think Raffles Medical Group has a strong edge — high-quality healthcare is becoming ever more important in big cities that have an ageing population.

With the COVID pandemic still lurking, Raffles Medical Group has an even more crucial role to play in today’s post COVID world. 

First half of 2020 was challenging for the company. It faced the COVID-19 lockdown across all its facilities and clinics. Non-essential clinical services and specialized surgeries were suspended.

Additionally, foreign patients were barred from seeking treatment in Singapore. 

But that all changed in the later half of 2020, when the government progressively opened up the economy.

Raffles Medical Group recorded an overall 8.8% growth on its revenues to S$568 million and net profits of 9.3% jumped to S$66 million in its full 2020 financial results.

It generated S$74 million in free cash flow, that’s 13% of the company’s total revenues. It’s a healthy number. 

I’d say its strong results indicate the huge demand for high-quality healthcare services in Singapore. In fact, gross profit margins maintained above 75% last year — reflecting Raffles Medical Group’s reputable brand in the healthcare industry.

The China story no one talks about

Over the past few years, Raffles Medical Group struggled to enter the Chinese market — unexpected operating costs and regulations.

But last year, it managed to grow its network to 14 Chinese cities. Including successfully bringing its three hospitals into operations — RafflesHospitalChongqing, RafflesHospitalBeijing and RafflesHospitalShanghai.

Raffles Medical Group’s China segment contributes less than 20% of its total revenues. However, I think growth opportunities for the healthcare giant still reside in China — a 1.3 billion big population. 

Source: Yahoo! Finance

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Raffles Medical has rewarded shareholders with abundance.

Over the last five years, the company grew its dividends from 2 cents per share in 2016, to 2.50 cents per share last year.

That’s about 2.2% dividend yield based on its 2020 dividend payout.   

Though Raffles Medical Group’s share price has fallen 50% since 2016 — due to hiccups in its China expansion, that all seems to be changing for the better.

In fact, its shares jumped 50% since October 2020, on the back of a solid performance. Through the pandemic crisis.

I believe the company will continue to use its strong cash flow abilities to reward its shareholders.

That should be a tailwind for investors.

Sometimes, investing can be simple. 

Always here for you, 
Willie Keng, CFA
Founder, Dividend Titan

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