Raffles Medical Group

 My Fundamental Analysis of Raffles Medical Group
 1
1.) History of Consistently increasing sales, earnings and cash flow
 Yes, Sales has increased 10% YOUY, Earnings 13% YOY, Cash flow increased YOY
2.) Good competitive advantage
Yes, there is a competitive advantage here, as Raffles medical group is a private medical group which 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.
3.) Future growth drivers
Yes,
-Ageing of Singapore
-Medical tourism
-Prosperity of Singaporeans leading them to prefer private hospitals, though more expensive, to restructured
4.) Long term debt < 3x per annum profits
Yes. Debt is at a comfortable 22 million level. Profits to date is already 30 million.
5.) ROE above average
15%, MUCH MUCH higher than SG medical and Healthway
6.) Low capital expenditure reqd. to maintain current operations
Hmm, I'm not sure about this. Would probably be a yes. RMG already has it's own building, expensive MRI/CT etc machines have been acquired.
7.) Senior management staff are holding, buying the stock
Yes. Dr. Loo Choon Yong , CEO, 54%

When to Buy:
1.) Undervalued
Px less than intrinsic value

P/E Ratio: $2.34/$0.08= 30 (WAY too high for a defensive stock)
note: Healthway has a larger PE Ratio because it's earnings have fallen off a cliff. Still, RMG's PE ratio is too high at this point of time.
P/Book Value: 2.34/$0.525= 4.45(Again, too high)
Intrinsic Value: I used Excel and calculated it's future cash flow for 20 years.
Assume modest 5% P.A. Growth, 12.5% Discount Rate: Intrinsic Value $1.96
5% growth, 10% Discount Rate: IV $2.30
Best Scenario:10% Growth, 10% Discount Rate: IV $3.38
Worst Scenario: 0% Growth, 12.5% DR: IV $1.47
(EDIT: I edited the discount rate. my discount rate previously was way too low at 3%, it should be closer to 15%, i put it at 10 and 12.5%, with the current low interest rate environment)


As you can see, Intrinsic Value at modest growth rate and modest discount rate is still only $2.30. Trading at slight premium to IV. Hence it leads me to the conclusion that it's overvalued, when PE, P/BV are put in context.

2.) Stock price in consolidation phase/ uptrend
Currently Long Term Uptrend, beating STI

Conclusion:
Looks good, good fundamentals, very healthy (health care stock healthy, ha ha ha) but seems to be too overvalued as of now(by it's PE ratio/ Price over Book Value ratio). I will KIV this stock and wait till it's ratios/price comes down to a more reasonable level before entering. After all a defensive stock shouldn't be trading this high.
Current Opinion: Stay out
If price drops (or earnings increase substantially) to PE 15-17, P/BV to a more palatable 2x, it would be a good investment. Also trading at a premium to IV, which i am extremely uncomfortable with.

These are simply my opinions.