Fundamental Analysis - Raffles Medical

Business

Provides healthcare services and hospital services.

34% healthcare, 62% hospital and 4% investment.

Future:

·         Raffles Hospital expanded, floor area doubled.  A one stop hub.

·         Emergency Care Collaboration with MOH

·         Regional representative office in Vietnam and Indonesia.  More to come.

·         More heartland healthcare.

Management

Dr Loo is the co-founder of Raffles Medical.  He is the Chairman.

He holds 51.86% shares of Raffles Medical, so he has control of the management.  We are not sure of his exact salary, just reported as 92% bonus and 8% salary which is over $500k.  In my view, he is flexible and ready to take less when times are bad because 92% from bonus.  As compared to Q & M, Dr Loo is getting a higher salary but Q & M CEO takes 80% salary and the rest bonus and benefit.

Number

EPS going up year after year.  But dip in 2014.
Debt to Asset is only 18%.  Does not have high leverage loan to finance operation.
Definitely considered a growth company, profit leap more than 15% in 5 years.
Retained earnings is increasing yearly, I believe keeping money for expansion and giving out less dividend.
A drop in cash in 2014, due to payment in investment properties or expansion.
Profit margin about 20%.
No long term debt, only short term debt.  Generally downtrend debt.
ROE on the downtrend, getting less efficiency.  Between 12 and 15%.
Dividend payout ratio is < 45%.  Highest 45% and lowest 32%.  I believe money kept for expansion.
Will never be undervalued.
Growth company so cannot expect high dividend yield.

Valuation

Based on 2014, the average PE is 24.  Highest 35 and lowest 14 (that was 2009).

In my view it is unlikely for PE is go to 10.  If crisis is here, it will be realistic to buy when PE is 14 to 20.

In 2014, its EPS is 0.12.  PE 14 - $1.68 and PE 20 - $2.4.  Anything below $2.4 will be good.

In 2014, price $4.2, dividend is 1.3%. Even if price go to $2.4, dividend yield is 2.2%.

CAGR = 10%

PEG = 3.4, no good.  Have to compare with another companies of similar industry to evaluate if it is consider growth.

Using growth rate of 10%, Discounted Cash Flow method, intrinsic value is $1.65 (just for a rough gauge, I will not use it as a price I will enter but just a guide).

Final View

Will not buy this stock now (Mar 2016).  As my view, it does not pay very good dividend to keep me waiting.  So I will only buy if margin of safety is very big, PE to be ≤ 20.  With Holland V expansion in progress, will expect to see revenue to go up in the near future.  Only once that happen, we may see a good stream of dividend.  For the time being, it is a wait for price to come to around $2 before I will make the first purchase.  I will label as growth and turning a mature stock in 5 or 10 years. 

If I find a blue chip with big dividend yield, higher chance to rebound, the amount allocate for Raffles Medical will reduce.