Raffles Medical Group (RMG) remains cautiously optimistic about its business in China. In its latest FY2024 ended Dec 31, 2024 briefing on Feb 24, executive chairman Dr Loo Choon Yong projected it would take another year or two for the company to begin breaking even in China. So far, its hospital in Beijing is profitable, and the company will focus on improving margins and efficiency there. For FY2024, revenue in China rose by 10.1% compared to FY2023.
RMG started in Singapore in 1976. It has since grown and expanded within and outside of the country. “We build and open hospitals, then deliver services through those hospitals. We then grow the business and improve margins,” says Loo.
“We are repeating this in China. We are optimistic in China because we have traction there. Overall, most of our patients are Chinese locals, but in different proportions in our various hospitals,” he adds. Expats also account for a large proportion of RMG’s patients in China and with many of them returning to China, this could bode well for the group.
Loo says China represents a vast market, so expansion into other regions is not a priority at this stage. However, RMG is paying attention to the Johor market. With the upcoming Johor-Singapore Special Economic Zone (JS-SEZ) and Rapid Transit System (RTS), Loo expects RMG and the wider healthcare industry in Singapore to be impacted by the ease with which Singaporeans can travel to Johor for more affordable healthcare, particularly for non-urgent treatments. Many also cross the border to purchase medications priced in ringgit, making significant savings compared to Singapore’s prices.
While he sees this phenomenon as similar to what is happening in Hong Kong and Shenzhen, Loo shares that the group is “studying the feasibility” of setting up shop to capture demand across the Causeway. However, it could be a medical facility instead of a full-fledged hospital. “You can’t get very rich [opening up a facility in Malaysia] because people are price sensitive,” he adds.
He is aware that RMG cannot win in a price war — especially against other markets with weaker currencies like the ringgit and baht. “Singapore can only compete on quality; we cannot compete on prices. We are good, but we cannot be cheap,” he says.
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Singapore may lose its status as the region’s medical hub in terms of volume, but Loo is confident that the city-state can still attract demand for specialised treatments, such as cancer and heart care. With government subsidies available, Singaporeans are also likely to continue seeking healthcare locally.
Asset-heavy strategy
While many companies have embraced a lighter balance sheet in recent years, RMG plans to maintain its asset-heavy strategy, retaining ownership of its hospitals rather than selling stakes in the physical assets to financial investors.
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RMG operates in 14 cities across five Asian countries, with three general hospitals in Beijing, Chongqing and Shanghai, and more than 100 multi-disciplinary medical centres in Singapore, China, Vietnam, Japan and Cambodia. “We believe in the opportunity [of the asset], so we want to take [and own] the equity,” says Loo.
In his view, owning the property allows the group to benefit from further upside and maintain better control over the asset. Still, RMG is also mindful of the potential risks it may face. Currently, Raffles Hospital Singapore has some unused spaces, but Loo remains optimistic, viewing it as an opportunity for flexibility, allowing the company to utilise the space as and when needed.
“We don’t want to just be a manager because, unlike a hotel, a hospital is more valuable to manage. How much can you pay for that? We care about how we do things in the hospital,” says Loo.
RMG plans to expand into China by fully owning its hospitals there. Loo explains that while the company has had a long presence in China, expansion has been slow due to policies in several cities that restrict foreign ownership to 70%, with the remaining 30% required to be held by a local entity.
Such curbs had dissuaded RMG from expanding further in China. However, the country has since liberalised its policies to allow foreigners full ownership of hospitals that they build.
Loo explains that while RMG may bring in partners to build a hospital, it wants to choose the right partner and give it fair ownership, even if that means owning less than 30% of the entity.
Positive cash flow
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On Feb 24, RMG released its FY2024 results, which saw earnings for the full year decline by 31% y-o-y to $62.2 million due to lower government grants and the absence of the fair value gain of investment properties.
In 2HFY2024, earnings rose 4.3% y-o-y to $31.6 million. Excluding fair value gain of investment properties, 2HFY2024 earnings would have been a 38% y-o-y gain.
Revenue for the full-year period was 6.3% higher y-o-y at $751.6 million, while 2HFY2024 saw a 14.8% y-o-y increase to $385.9 million. This was due to higher contributions from across its business divisions — hospital, healthcare and especially insurance services.
“Our insurance business is growing and is worth about $180 million today. We are positive about it. But we know that the whole industry has been hit by medical inflation, where prices have increased. The government has stepped in and that is why premiums today are also up,” says Loo, adding that in times like these, the insurance players in the industry will start to partner up and “do what is mutually beneficial”.
On a full-year basis, RMG generated $86.3 million in cash from operating activities and has cash and cash equivalents totalling $343.7 million. “We are accumulating cash faster than we can invest. So, we want to distribute that to our shareholders,” says Loo.
RMG has revised its dividend policy to pay out at least 50% of its sustainable earnings annually. In FY2024, it declared a final dividend of 2.5 cents. On top of that, RMG intends to buy back up to 100 million ordinary shares over the next two years.
Loo has shared that this will offer EPS accretion for those who stay invested in RMG. “We feel that shareholders will benefit,” he says. If the group needs more cash, Loo says he is not worried because there is room to increase gearing.
Upgrades all around
Analysts are starting to reverse their previously cautious stance on RMG, as they see a rosy medium-term outlook, underpinned by further improvements in China and expected breakeven in FY2026.
Four research houses — DBS Group Research, Maybank Research, UOB Kay Hian and PhillipCapital — have upgraded their calls to “buy” or “accumulate” from a “hold” or “neutral”. They have also increased their target prices on the counter, with their target prices ranging from $1.02 to $1.12, as they cheer RMG’s capital management moves.
Shekhar Jaiswal of RHB Bank Singapore observes that RMG is trading at lower EV/Ebitda and P/B levels but has a lower ebitda margin and ROE relative to Asean peers. As such, he is less bullish on this counter versus his peers, with a “neutral” call. “We expect rerating to materialise only when a China turnaround becomes evident,” he says.
As of Feb 25, shares in RMG have gained 9% since the announcement of its results on Feb 24 to trade at 90 cents, giving it a market capitalisation of $1.71 billion.
