A Better Healthcare Stock To Buy: Raffles Medical Group Ltd Vs. Singapore O&G Ltd (Part 3)
- Original Post from The Motley Fool Sg

Healthcare companies are generally considered as defensive stocks since their services are needed when the economy’s good as well as bad. The defensive nature of their businesses also makes healthcare companies attractive to investors.


There are many healthcare companies in Singapore’s stock market and you might want to know which is a better investment opportunity. There’s no easy answer, but I want to directly compare the important business and valuation aspects of two healthcare services providers –Raffles Medical Group Ltd (SGX: BSL)andSingapore O&G Ltd (SGX: 1D8)– in a mini article-series.


This article is the third and last in the series and it compares the valuations of the two healthcare companies. In particular, the valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield. Myfirst article in the seriescompared the most recent quarterly earnings updates of the pair, while thesecond articlelooked at their long-term track record of growth.


The business


Raffles Medical is a leading integrated private healthcare provider in the region. In Singapore, it has a large network of clinics and medical centres, in addition to its flagship Raffles Hospital, which provides tertiary medical care. The company also has medical facilities beyond Singapore in 12 cities across China, Japan, Vietnam, and Cambodia. The medical facilities in China include two hospitals that Raffles Medical is developing in Chongqing and Shanghai; the hospitals are expected to be completed in the fourth quarter of 2018 and the second half of 2019, respectively.


Meanwhile, Singapore O&G is a specialist healthcare services provider that has a focus on women’s health. The company has four business arms: Obstetrics and Gynecology; Cancer-related; Pediatrics; and Dermatology. Singapore O&G sources all its revenue from Singapore at the moment.


The showdown


The table below shows the valuations of the two healthcare companies as of 22 October 2018:























Company PB ratio PE ratio Dividend yield
Raffles Medical 2.45 25.00 2.16%
Singapore O&G 3.56 14.77 4.97%

Source: SGX Stock Facts


Looking at the table above, I think it’s clear that Singapore O&G is the cheaper among the two due to its lower PB and PE ratios.


The Foolish conclusion


As a recap, it was Singapore O&G that had the best performance when I compared the two healthcare companies’ most recent quarterly earnings updates in my first article in the series. It was also Singapore O&G with the better report card for long-term growth, as discussed in my second article. And as we’ve just seen, Singapore O&G is again the company with the best valuation. So, Singapore O&G has emerged as the winner by coming out ahead in all three of my criteria.


But with all the above been said, investors are reminded that the information presented in the series is by no means a recommendation to take any action on Raffles Medical and Singapore O&G. Instead, the information should be viewed only as a useful starting point for further research.


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1 Simple Number to Understand 3 Parts of Raffles Medical Group
- Original Post from The Motley Fool Sg

Raffles Medical Group Ltd (SGX: BSL) runs hospital and healthcare services in Singapore. It also has a network of clinics in five countries and 14 cities. Also, it has two hospitals (one under development) in China.


In this article, I want to dig deeper into Raffles Medical’s return on equity, or ROE.


The choice of ROE


Why the ROE some of you might be asking? That’s because the financial metric gives investors important insight on a company’s ability to generate a profit using the shareholders’ capital it has.


An ROE of 20% means that a company generates $0.20 in profit for every dollar of shareholders’ capital invested. In general, the higher the ROE, the more profitable a company is. A high ROE can also be a sign that a company has a high quality business.


That being said, it’s worth noting that the use of high leverage – which increases the financial risk faced by a company – can also increase a company’s ROE. So, that’s something to observe.


Calculating the ROE


The ROE can be calculated using the following formula, which is the way many investors do it:


ROE = Net Profit / Shareholder’s Equity


But, the ROE can also be calculated using a different approach shown below:


ROE = Asset Turnover x Net Profit Margin x Leverage Ratio


Doing so will reveal three important aspects about a company: How well it is managing its assets, how efficient it is at turning revenue into profit, and how much financial risk it could be taking on. For more information about this formula for ROE, you can go here.


With that, let’s turn our attention to the ROE of Raffles Medical.


The actual numbers


The asset turnover measures the efficiency of a company in using its assets to generate revenue. It is calculated by dividing a company’s total revenue by its assets.


For Raffles Medical, it had total revenue of S$ 489.1 million, and total assets of S$ 1, 116.3 million for its fiscal year ended 31 December 2018 (FY2018). This gives it an asset turnover of 0.44.


The net profit margin measures the percentage of revenue that is left as a profit after deduction of all expenses.In FY2018, Raffles Medical had a net profit margin of 14.5%, given its net profit of S$70.8 million and revenue of S$ 489.1 million.


Lastly, we have the leverage ratio, which shows the relationship of a company’s total assets to its equity. It is calculated by dividing total assets by equity. A higher ratio means that a company is funding its assets with more liabilities, hence resulting in higher risk. In FY2018, Raffles Medical had total assets and total equity of S$ 1,116.3 million and S$ 816.6 million, respectively. This gives a leverage ratio of 1.37.


When we put all the numbers together, we arrive at an ROE of 9%.


Foolish takeaway


Return on equity is a good metric to understand the quality of a business. Nevertheless, investors should be aware of (and understand) all the three components that make up the ROE. In general, I will pay more attention to asset turnover and profit margin since those two metrics better reflect Raffles Medical’s underlying business performance.


Last but not least, calculating the ROE is just the start of our research of a company. We should also compare Raffles Medical’s ROE with its peers, as well as its historical ROE, to get a better understanding of Raffles Medical’s performance.


Click here nowfor yourFREEsubscription toTake StockSingapore, The Motley Fool’s free investing newsletter. Written byDavid Kuo,Take Stock Singaporetells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.


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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.



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7 Highlights from Raffles Medical Group Ltd’s Q1 2019 Earnings
- Original Post from The Motley Fool Sg

Earlier this morning, Raffles Medical Group Ltd (SGX: BSL), or RMG for short, released its first quarter fiscal year 2019 (Q1 2019) earnings report. As a quick recap, RMG runs hospital and healthcare services in both Singapore and China, and has a network of clinics in both Singapore and four other Asian countries. In China, it has completed the construction of one hospital while another is under development.


Here are seven highlights from RMG’s latest earnings report:



  1. Revenue for Q1 2019 rose by 6.7% year-on-year to S$128.3 million from S$120.2 million a year ago. Revenue from healthcare services and hospital services divisions grew by 8.9% and 3.2%, respectively. For healthcare services, higher revenue was recorded due to an increase in premium from existing and new clients as well as the Primary Care Network (PCN) scheme and other projects. Hospital services saw better revenue contribution due to higher utilisation of hospital facilities.

  2. Due to higher start-up costs for Raffles Hospital Chongqing (RCQ), operating profit for RMG declined by 9.4% year-on-year to S$17.1 million. As a result, net profit after tax declined by 13.7% year-on-year to S$13.6 million. If the results of RCQ are excluded from the group, net profit after tax would have grown by 2.1% year-on-year. The company said that the gestation loss for RCQ is within expectation.

  3. RMG’s balance sheet remains strong with S$111.8 million of cash and S$126 million of debt. The group continues to generate healthy operating cash flows of S$21.7 million, while capital expenditure was elevated during the quarter at S$26.4 million due to the construction of Raffles Hospital Pudong in Shanghai, China.

  4. Raffles Hospital Singapore officially opened its new block Raffles Specialist Centre in March 2019. The complex is equipped with ambulatory and inpatient services from 31 different specialties, and would enable the group to provide quality care and services to customers.

  5. Another eight clinics were added to Raffles Medical clinics’ PCN of 40 clinics to enhance convenience to more patients and to branch out to more areas in Singapore for easier access to patients.

  6. The directors expect RMG to be able to grow its revenue and remain profitable for 2019, notwithstanding the expected gestation loss for RCQ.

  7. RMG’s trailing 12-months earnings per share stands at 3.84 Singapore cents. Based on the closing price for RMG of S$1.07 as of 26 April 2019, the group is trading at a trailing 12-months price earnings ratio of 27.9x. With a full-year trailing dividend of 2.5 Singapore cents, historical dividend yield stands at 2.3%.


All seems to be in order to at RMG, as the expected gestation loss for RCQ is within expectations. The group continues to demonstrate resilience in its core operations, with both divisions showing growth. With the opening of Raffles Specialist Centre and the addition of clinics to the PCN, both divisions should continue to witness healthy growth.


Raffles Health Connect’s platform, which was launched just three months ago in January 2019, should continue to see slow and steady uptake. Investors should maintain a long-term view with regards to RMG’s China expansion as it is still early days for the group, as it is anticipated that each hospital would need at least three to four years to break even.


There are 28 surprising and important things we think every Singaporean investor should know—and we’ve laid them all out in The Motley Fool Singapore’s new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge—simply click here now to claim your copy.


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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has a recommendation for Raffles Medical Group Ltd. The Motley Fool Singapore contributor Royston Yang owns shares in Raffles Medical Group Ltd.


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Raffles Medical Group Ltd’s Share Price Is Down 35% Since 2015. Is It a Good Business?
- Original Post from The Motley Fool Sg

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 in addition to two hospitals (one under development) in China.


At a current price of S$1.07, the company’s stock is down 35% from its peak in 2015 of S$1.65. This piqued my interest and inspired me to find out more about the company. Specifically, I want to understand if Raffles Medical has a high-quality business.


If it does, its current low stock price could be an investment opportunity. Unfortunately, there’s no easy answer to the question. However, a simple metric can help shed some light on the question: the return on invested capital (ROIC).


A brief introduction to the ROIC


In a previousarticle, I explained how ROIC can be used to evaluate the quality of a business.



The simple idea behind the metric is that a business with a higher ROIC requires less capital to generate a profit, and it thus gives investors a higher return per dollar that is invested in the business. High-quality businesses tend to have high ROICs, while the reverse is also true — a low ROIC is often associated with a low-quality business.


You can see how the math works for ROIC in the formula above.


Raffles Medical’s ROIC


The table below shows Raffles Medical’s ROIC using numbers from its fiscal year ended 31 December 2018 (FY2018).



Source: Raffles Medical’s financial statement


In FY2018, Raffles Medical generated a ROIC of 10.7%. This means for every dollar of capital invested in the business, Raffles Medical earned 10.7 Singapore cents in profit. The company’s ROIC of 10.7% is average based on the ROICs of many other companies I’ve studied in the past. This suggests that Raffles Medical has an average-quality business.


Investors should be reminded that the ROIC is only one of the many aspects investors can use to assess the quality of a company’s business. It’s important to also take into account other qualitative factors when analyzing a company.


Click here nowfor yourFREEsubscription toTake StockSingapore, The Motley Fool’s free investing newsletter. Written byDavid Kuo,Take Stock Singaporetells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.


TheMotley Fool’s purpose is to help the world invest, better.Like us on Facebook to keep up-to-date with our latest news and articles.


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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 shares of Raffles Medical Group.


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A Quick Overview of Raffles Medical Group Ltd’s Track Record in Growing Its Business
- Original Post from The Motley Fool Sg

Raffles Medical Group Ltd (SGX: BSL) runs hospital and healthcare services in Singapore.


One of the things that I like to do when analysing a company is to study its track record. The past is no guarantee of the future. But historical information is the most reliable thing that we can use as our basis to forecast what lies ahead.And this brings me to the main purpose of this article, which is to have a quick overview of Raffles Medical’s historical business growth. The table below is a snapshot of the company’s important financial metrics from FY2014 (financial year ended 31 December 2014) to FY2018:



Source: Raffles Medical’s 2018 Annual Report


Here are a few points worth noting:



  1. First of all, revenue increased from S$374.6 million to S$489.1 million, up by 30.6% during the period. This translates to a compound annual growth rate (CAGR) of 6.9%.

  2. Secondly, profit after tax and minority interest (PATMI) has grown from S$67.6 million in FY2014 to S$71.1 million in FY2018, up by a total of 5.2% during the period. Yet, earnings per share (EPS) remained flat during the same period.

  3. Last but not least, dividend per share grew by 36.6%, or a CAGR of 8.1%, during the same time frame.


Takeaway


In sum, Raffles Medical delivered a respectable growth in revenue and dividend in the past five years. On the downside, EPS remained roughly flat during that period.


Click here nowfor yourFREEsubscription toTake StockSingapore, The Motley Fool’s free investing newsletter. Written byDavid Kuo,Take Stock Singaporetells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.


TheMotley Fool’s purpose is to help the world invest, better.Like us on Facebook to keep up-to-date with our latest news and articles.


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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. Motley Fool has a recommendation for Raffles Medical Group Ltd.


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2019 Better Buy Now: Raffles Medical Group Ltd or Singapore O&G Ltd?
- Original Post from The Motley Fool Sg

Healthcare companies are generally considered 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, we’re comparing two companies with exposure to this sector, namely Raffles Medical Group Ltd (SGX: BSL) and Singapore O&G Ltd. (SGX: 41X).


In myprevious article, we compared the full-year performances of both companies. Now we’re comparing the return on invested capital (ROIC) 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 theROIC metricand why it’s useful when researching potential investments.


The showdown


Let’s begin with Raffles Medical. In FY2018, the company generated a ROIC of 10.7%. That means for every dollar of capital invested in the business, Raffles Medical earned 10.7 cents in profit.


In the same period, Singapore O&G generated a ROIC of -1522.2%. The unusual figure is due to the company’s policy of funding its tangible capital employed with trade payables. Moreover, Singapore O&G has significant goodwill (around S$24.1 million) on its balance sheet as a result of past acquisitions.


Though we usually exclude goodwill when calculating ROIC, it’s relevant to include it in this instance to reflect the capital-light, acquisitive nature of Singapore O&G’s business model.


Thus, including goodwill, Singapore O&G’s adjusted ROIC would have been around 59%.


Conclusion


Singapore O&G’s higher ROIC makes it look like a better business since it indicates a better use of investors’ capital.


Click here nowfor yourFREEsubscription toTake StockSingapore, The Motley Fool’s free investing newsletter. Written byDavid Kuo,Take Stock Singaporetells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.


TheMotley Fool’s purpose is to help the world invest, better.Like us on Facebook to keep up-to-date with our latest news and articles.


More reading



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.


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