Raffles Medical Group Ltd (RMG) is a home-grown leading private healthcare services provider in Asia, operating medical facilities in thirteen cities in Singapore, China, Japan, Vietnam, and Cambodia. In Singapore, it occupies a unique place in the healthcare system as the only private medical provider that operates a full-fledged tertiary hospital, integrated with other medical facilities such as family medicine and dental clinics, insurance services and Japanese and Traditional Chinese Medicine clinics.

Having listed on the SGX since 1997, RMG had seen outstanding share price performance with its share risen from a price of sub 15 cents in 1998 to the current price of $1.10.

With its second-quarter 2018 financial results recently announced, we would take a look at its performance and some of is growth drivers going forward.

Before that, let’s delve deeper into its business segments and understand how does it generate revenue.

Business Segments

RMG divides its operations into three business segments:

  • Hospital Services – the group’s flagship tertiary hospital located at Bugis that was recently expanded
  • Healthcare Services – via a network of family clinics, dental clinics, insurance services and Traditional Chinese Medicine
  • Investment Holdings – investment properties and retail spaces leased for rental income

For 2017, Hospital Services is the largest revenue contributor with 56.6% of total revenue; followed by Healthcare Services at 40% and Investment Holdings with 4%.

Source: RMG 2017 Annual Report

Income Statement

S$ ‘0002Q 20182Q 2017Yoy change
Revenue120,202120,0880.1%
Profit from Operations20,27119,5783.5%
Profit before Tax20,28119,7962.4%
Profit Margin16.8%16.4%N.A.

Source: RMG Q2 2018 Earnings Announcement

For 2Q 2018, Revenue grew marginally by 0.1% to $120 million. However, Profit from Operations and Profit before Tax grew 3.5% and 2.4% respectively to $20.27 million and $20.28 million.

Extracted from the quarterly financial statement, revenue from Healthcare Services increased by 5.4% underpinned by addition of new corporate clients, and a new contract awarded by the Ministry of Health and Civil Aviation Authority of Singapore to provide Air Borders screening services. However, this was offset by a revenue decrease of 2.3% from Hospital Services due to softer demand from foreign patients.

In terms of Profit from Operations margin, 2Q 2018 had a better showing with margin expansion to 16.8%. It seems that RMG was able to control its cost quite well such that the margin actually expanded.

According to RHB Research Corporate News Flash dated 6 Aug 2018, as a percentage of revenue, staff cost fell to 50% due to significant cost management measures at MC Holdings, a chain of clinics in China and Vietnam acquired in 2015.

Balance Sheet

S$ ‘00030/6/201831/12/2017
Cash & Equivalent108,40998,270
Current Loans 42,34938,000
Long-term loans49,25841,204
Net Cash Position16,80019,100

Source: RMG Q2 2018 Earnings Announcement

RMG still boasts a strong balance sheet as at 30 June 2018. Its Cash & Cash Equivalent was $108 million, higher than the $98.2 million cash balance at the end of 2017.

However, net cash position decreased from $19.1 million end-17 to $16.8 million as at 30 June. Quoting RMG management from the earnings announcement, this is due to ‘payments for investment properties under development of S$26.3 million, purchase of property, plant, and equipment of S$11.9 million and payment of dividends of $6.6m’.

Cashflow

Net cash generated from operating activities was $18.8 million for 2Q 2018. This was quite a large drop from the 2017 figure of $26.3 million.

If we take free cash flow as ‘net operating cash flow – purchase of property plant and equipment’, RMG’s free cash flow for 2Q 2018 would be $11.06 million. This is also a drop from $23.5 million free cash flow for 2Q 2017.

Nevertheless, RMG still churns out healthy cash flow from its operations, as the net cash flow from operating activities was in excess of the net cash used in investing activities by slightly more than $2 million.

Business Outlook

Management gave a timely update on the various expansion plans and new initiatives implemented to propel future growth.

Firstly, management shared that the refurbishment work for its outpatient clinics and inpatient wards in Raffles Hospital has started and would complete in 3Q 2018. This would increase primary care, specialist outpatient, and inpatient facilities.

The group is also entering the new market on the insurance front. Raffles Health Insurance has recently obtained approval to enter the Integrated Shield Plan (IP) market. The product, named Raffles Shield, has been launched on 1 Aug 2018. According to UOB Kay Hian Regional Morning Note dated 7 Aug, potential IP revenue $10m – $12m, with a target of 25,000 new policyholders in the first year.

On the China expansion, Raffles Hospital Chongqing’s construction is progressing well. Equipment procurement and recruitment of physicians and hospital management staff have started and the response has been positive. It is slated to open in the fourth quarter this year.

Raffles Hospital Chongqing. Source: OCBC Investment Research Company Update, 7 Aug 18

As for Raffles Hospital Shanghai, its construction is progressing well and is scheduled to start operating in second half 2019.

Conclusion

It is apparent that RMG is pursuing multiple fronts of expansion to diversify its revenue stream and achieve future growth, as seen from its shield plans, hospital refurbishment and China expansion. Should these projects be executed well, its earnings and revenue would see healthy growth.

However, we should also be mindful that as China hospitals shifts to high gear with opening date approaching, expenses are expected to rise due to start-up cost. We need to monitor closely that costs do not increase too drastically that it affects the profit margin.


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