3 Reasons to Like Raffles Medical Group Now

Raffles Medical Group Ltd (SGX: BSL) runs hospital and healthcare services in Singapore. It also has a network of clinics in five countries and 13 cities, and two hospitals in China.

In the last five years, the medical provider’s stock price has declined by about 50% to S$0.86 from its peak of around S$1.70.

Despite the massive decline in its stock price, there are good reasons to like the company. Here are three reasons why I think investors can still consider it a buy.

1. Provision of necessary services

Healthcare companies like Raffles Medical are generally considered defensive stocks since their services are needed in both the good and the bad times.

Moreover, the demand for such services generally grow over time due to population growth, as well as other factors like an ageing population, higher disposable income and others.

As such, investing in a company like that could provide investors some emotional comfort (in addition to financial returns). Knowing that a hospital will continue to generate income irrespective of the economic conditions is a rare attribute.

2. Sound balance sheet

A company must be able to withstand the ups and downs in the business cycle in order to continue to grow over a long period of time. This is particularly true in the current challenging climate caused by the Covid-19 outbreak.

To do so, it must have a strong balance sheet so that it can 1) satisfy its existing operational and financial requirements and 2) invest in future growth.

Generally speaking, a company with a strong balance sheet will have plenty of cash in its bank and a reasonable net debt-to-equity ratio (not more than 100%).

In the case of Raffles Medical, it has maintained a strong balance sheet over the years. Let’s look at the latest numbers as at 31 December 2019.

Its borrowing stood at S$165 million (US$115.8 million) while its cash and cash equivalents stood at S$152 million, giving it a net debt position of S$7 million. With an equity of S$857 million, its gearing ratio is only 1%.

With its strong balance sheet, as well as its strong operating cash flow generation (S$111 million in FY2019), Raffles Medical is well-positioned to sustain, and grow its business over time.

3. Owner-operator

The next thing that I like about Raffles Medical is the fact that its key personnel also happen to be the company’s major shareholders.

According to Raffles Medical’s 2019 annual report, the company is 51.71% owned (direct and deemed interest) by Dr Loo Choon Yong, who is the founder as well as the executive chairman of the company.

As the owner-operator, it is very likely that Dr Loo’s interest is well-aligned with minority shareholders. Thus, we can expect him to act in the long-term best interests of shareholders, which is to grow the value of the company.

Foolish conclusion

Investors are always looking for good investments to own for the long-term. Most companies fail to meet the test.

However, Raffles Medical, in my opinion, is one of those rare gems that could be a solid long-term investment.