Raffles Medical Group looks prime for a rebound as it crosses past the 50-Day moving average

By ShareInvestor – 09 October 2019

Article highlights:

  • High Gross Margins above 20% for past 3 years
  • Continued to incur debt due to hospital expansion into China
  • Executive Chairman owns an outsized 52.43% total interest
  • Majority of Analysts calling for a “Hold” rating
  • Reasonable 26x P/E compared to 2 other hospital operators

If you have been following the STI Index, you would be dismayed on its year-to-date performance. At the time of writing, the STI Index is trading at 3,116.63, up merely 1.8% year-to-date from its closing price of 3,061.53.

On the other hand, stocks like VICOM Ltd (SGX: V01) and ThaiBev (SGX: Y92) have moved up around 30% and 45% respectively during the same period. Investors utilizing our Trend Following Screener would be able to capture them at the beginning of their run-up.

As such, we decided to run this screener based on our pre-set metrics available in ShareInvestor WebPro:

While there are as many as 110 companies that match the above, we have chosen a healthcare provider to discuss in this article and the company is Raffles Medical Group Limited (SGX: BSL) or “RMG” in short.

Company Background

Sourced from Raffles Medical

RafflesMedicalGroup is a leading integrated private healthcare provider in the region, operating medical facilities in thirteen cities in Singapore, China, Japan, Vietnam and Cambodia.

RafflesMedical clinics form one of the largest networks of private family medicine centres in Singapore. RafflesHospital, the flagship of Raffles Medical Group, is a private tertiary hospital located in the heart of Singapore offering a wide range of specialist medical and diagnostic services for both inpatients and outpatients.

The Group also has representative offices in Indonesia, Vietnam, Cambodia, Brunei, Bangladesh and the Russian Far East, as well as associates throughout the Asia-Pacific region.

RafflesDental is a team-based dental group in Singapore comprising of a specialist dental practice at Raffles Hospital and a network of general dental clinics. RafflesHealthInsurance provides healthcare insurance to corporate and individual clients.

For more information, please refer to its website at https://www.rafflesmedicalgroup.com/investor-relations.

RMG’s Share Price Chart

As of 09Oct2019 | Sourced from ShareInvestor WebPro

From the share price chart above, we can see that the recent share price has surpassed its 50-day moving average (red line). It is also supported by the RSI oscillator moving above the 50 mid-way mark.

While not shown above, RMG’s share price also demonstrated an Average Directional Index (ADX) reading above 25 which signals the presence of a strong trend.

Financial Analysis Overview

Apart from the technical analysis part, we also decided to focus a bit more on RMG’s financials. For a quick overview, we turn to our proprietary Smiley Financial Analysis function in ShareInvestor’s WebPro as seen below.

As of 09Oct2019 | Sourced from ShareInvestor WebPro

Taking into account the green smileys, we see increased revenue and profits for the consecutive past 5 and 3 years respectively. The company is also able to maintain a good gross profit margin of 20-40% for the past 3 years.

However, investors should watch out for decreasing dividends over the past 5 years and a sudden increase in high debt to cashflow last year.

As of 09Oct2019 | Sourced from ShareInvestor WebPro

With that in mind, we looked at RMG’s net debt over the past 5 years and saw that it has went from a net cash position of S$143.8 mil in FY2014 to net debt position of S$43.04 mil in Trailing 12M FY2019.

According to its latest 2Q results, the company explained that the increase was mainly due to “project expenditure incurred for Raffles Hospital Shanghai and Raffles Hospital Chongqing”.

Top 20 Ownership

As of 09Oct2019 | Sourced from ShareInvestor WebPro

Looking at the above ownership chart, we can see that the number 1 top shareholder is Dr. Loo Choon Yong with an outsized 49.17% interest. Dr Loo co-founded Raffles Medical Group in 1976 and is currently the Executive Chairman of the group.

In addition, he is also the shareholder and director of S&D Holdings Pte Ltd with his wife which has a 3.26% ownership in the company. As such, his total interest adds up to around 52.43%.

For ShareInvestor WebPro’s Ownership feature, we can look at the top 20 shareholders of a particular company. In this case, investors can observe that the other substantial shareholders are those renowned asset management firms like Vanguard Group, BlackRock, Aberdeen Asset etc.

Analyst Consensus Estimates

As of 09Oct2019 | Sourced from ShareInvestor WebPro

Taking a page from the ShareInvestor’s Analyst Consensus Estimates, RMG is well-covered by analysts with 11 ratings. The average recommendation comes up to a with a target price of S$1.11, around 8.9% upside from its current share price of S$1.02.

As of 09Oct2019 | Sourced from ShareInvestor WebPro

When we look at the 2-year consensus estimates chart (stretching from Oct 2017 to Oct 2019), the “Sell” ratings have ‘disappeared’ but majority 82% of the analysts are calling for a “Hold” on the counter.

Digging into the past news, we opined that it is probably due to the recent decrease in RMG’s share price and the overhang of start-up costs in China.

Valuation

Last but not least, we zoomed into the Price-to-Earnings (P/E) valuation of RMG for the past 10 years.

As of 09Oct2019 | Sourced from ShareInvestor WebPro

From the graph above, we can quickly ascertain that its FY2018 P/E ratio of 26.24x is still around the average of the past 5 years although it jumped up from FY2013.

As of 09Oct2019 | Sourced from ShareInvestor WebPro

For some perspective, we compare RMG to other SGX-listed healthcare companies and found out that it is trading cheaper compared to the hospital operators IHH and HMI. RMG also has the leading market capitalization in the bunch of healthcare stocks shown above.

Keen to analyse other stocks using the above features? Check out our ShareInvestor WebPro’s Free Trial here!

 

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