Raffles Medical Group In Focus

Raffles Medical Group Ltd (R01)
(16 October 2015) close: S$4.41
Target price: S$4.70
1) Sector: Healthcare
2) Core business structure: Raffles Medical Group (RMG) is a leading medical group and the largest private group practice in Singapore. As a fully integrated healthcare organization, the Group owns and operates a network of family medicine clinics, a tertiary care private hospital, insurance services and a consumer healthcare division.
3) Segment that generates the highest revenue: Hospital services contributed 62% of the total revenue, while Healthcare services contributed 34% and Investment contributed 4%
4) Countries that the business operates: Mainly in Singapore, with overseas expansion in China and also some medical centers in Indonesia and Vietnam.
5) Challenges:
-Staff cost: The healthcare industry is short of human resources and the situation got worse as the government tightens the supply of foreign workers. This will result in labor shortage and staff cost escalation in the private sector. Thus, the ability to maintain profitability depends heavily on managing staff costs and compensations.
-Retaining talents: In the medical industry, doctors usually have their own loyal recurring patients. The challenge is in retaining capable doctors and therefore his clientele.
-Increasing regional competition: Asian countries, such as Malaysia, India (Apollo Hospitals) and Thailand (Bumrungrad International Hospital), have emerged as popular medical destinations due to their competitive pricing. Price sensitive medical travelers may turn to these countries for low-risk elective surgeries.
 6) Strengths:
-Strong in tying up Business to Business (B to B): Raffles Medical Group is the leader in the corporate segment and has grown consistently over the years to today where they serve 6,500 corporate clients including local and multi-national corporations and government agencies. With RMG group practice model and experience working with many private and government organizations, it has an array of medical schemes which can be customized to suit the client organization’s medical benefits policy and requirements.
-Fully Integrated model: It starts from the group’s leadership position in the corporate segment via their network of 78 multidisciplinary clinics located across Singapore. For the patients who visited these clinics (including those in the corporate tie up), if further medical assistance is required, the doctors at the GP medical clinic can refer the patients to the specialist doctors at Raffles Medical’s specialist clinics and Raffles Hospital. The specialist clinics could still subsequently refer the patients for admission to Raffles Hospitals. This fully-integrated model enables RMG to build and retain a strong volume of patients and at the same time creating economies of scale.
-Strong branding: Also carrying the Raffles brand, Raffles Medical has a trusted brand with a huge network of clinics, hospitals, surgical centers, specialty units and medical laboratories around the island. Furthermore at Raffles Hospital, it only offers the best. The rooms are outfitted to the standards of five-star hotels, with an array of suites, single, double, four and even six-bed rooms for patients to choose from. It purports to offer value added services to people who are willing to pay, and to cater to the growing medical tourism sector. As a consolidated company which can cater fully for the medical tourists, foreigners will flock to RMG for ease and convenience.
7) Significant events:
-First medical center in Japan
Raffles Medical Group has made its first foray into operating clinical facilities in Japan by opening a 5,400 square feet medical center at Herbis Osaka, Kita-ku in Osaka City. Herbis Osaka, which is in the prime CBD area, has retail, office and hotel components, with the Ritz Carlton Osaka located in the same building.
“RafflesMedical Osaka” will be operated by the group’s subsidiary Raffles Japanese Clinic, along with its JV Japanese partner Socion Healthcare Management Ltd. Targeting at both local patients and tourists, there would be Japanese and foreign physicians, as well as professionals who can provide multi-lingual support for foreign patients.
-Pipeline of projects to sustain growth:
We can look forward to the completion of Raffles Holland V, slated for completion by 1Q16. Further ahead, Raffles Hospital extension is expected to be ready by 2Q17 and to establish a client base, 1-2 more medical centers in Shanghai could be introduced before the completion of its Shanghai Hospital in 2018.
8.) GTI Ranking:326
9) Table:
10) Recommendation: HOLD. Raffles Medical Group is very competitive in the private Healthcare market in Singapore, with promising overseas expansions. It has strong business fundamentals, with dominance in the high-end market due to high barriers to entry. It has capable management, with the Executive Chairman owning a high percentage of shares in the company and thus, had a high alignment to shareholder interests
HOWEVER, at the current price of S$4.41, the share price is trading at a high price-to-earnings ratio of about 36. This would present investors with a low margin of safety if they were to purchase the stock now. As the share price had recently underwent a correction from its record high of S$4.99, it would be prudent for long term investors to wait for further corrections before purchasing a stake in the company.
COMPILED BY: Shi Junxian        
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.



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