Raffles Medical Group’s 3Q2019 Earnings: Reported Numbers Don’t Look Good But Let’s Go Beyond
Earlier this morning, Raffles Medical Group Ltd (SGX: BSL) announced its financial results for the third quarter of 2019. Things don’t look good at a glance, but upon taking a deeper look, the numbers are not that bad after all. Let’s dig in.
TL;DR: Let’s Look Beyond The Headline Numbers
- Revenue grew 7.8% to S$130.5 million;
- But, net profit after tax fell 16.9%; and
- Excluding start-up losses at Raffles Hospital Chongqing, net profit after tax would have improved.
For the reporting quarter, revenue rose by 7.8% year-on-year to S$130.5 million. The increase was thanks to higher revenue from its Healthcare Services and Hospital Services business segments.
Revenue from Healthcare Services comes from the operations of medical clinics and other general medical services. This segment also provides health insurance, and is involved in management and consultancy services.
Next, the Hospital Services segment offers specialised medical services, and operates hospital and business of medical laboratory and imaging centre.
The Healthcare Services division’s revenue climbed 9.5% on the back of an increase in insurance contracts and corporate clients. On the other hand, revenue from the Hospital Services grew 7% due to higher patient load.
Moving on, net profit after tax tumbled 15.8% to S$13.6 million on the back of gestation losses for Raffles Hospital Chongqing, which opened earlier this year. Excluding the losses, net profit after tax would have increased by 4.8%. The growth in adjusted net profit after tax is higher than that of the 2019 second-quarter, which suggests that Raffles Medical’s core business is gaining traction.
The total addressable market for Raffles Hospital Chongqing is huge. Chongqing sports a population size of 34 million. To put things into perspective, the city’s population is six times larger than that of Singapore, which has a population of 5.7 million.
Robust Balance Sheet
A strong balance sheet is the trademark of a healthy company. In that aspect, Raffles Medical ticks the right box.
As of 30 September 2019, the healthcare outfit had S$118.0 million in cash and cash equivalents while it had S$128.5 million in total debt. This translates to a net debt position of S$10.5 million. In comparison, at the end of September 2018, it had S$6.9 million in net debt. Even though the latest quarter carried more debt than a year back, it is still manageable.
Free cash flow for the 2019 third-quarter decreased year-on-year, mainly due to capital expenditure for Raffles Hospital Chongqing and Raffles Hospital Shanghai.
The Shanghai hospital is slated to open next year. Raffles Medical announced that the building structure of Raffles Hospital Shanghai was completed in May 2019, and right now, the interior fit-out and purchase of major equipment is underway.
Overall, it was a decent set of results from Raffles Medical.
After adjusting for the gestational losses for Raffles Hospital Chongqing, net profit after tax in the 2019 third-quarter actually grew year-on-year. With a robust balance sheet, the private healthcare practice has what it takes to weather through the losses.
Expansion beyond Singapore is necessary for Raffles Medical to continue doing well over the long-term.
Even though gestational losses are expected for the new hospitals, they have the potential to do well, considering the total addressable market in those two cities are many times larger than Singapore’s population.
At Raffles Medical’s share price of S$0.995 right now, it has a trailing price-to-earnings ratio of around 28 and a dividend yield of 2.5%.
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The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the company mentioned.
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