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.
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 table below shows the valuations of the two healthcare companies as of 22 October 2018:
|Company||PB ratio||PE ratio||Dividend yield|
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.
$Singapore O&G(1D8.SI) $Raffles Medical(BSL.SI)