Raffles Medical is the largest private group practice in Singapore. Through its large network of 65 clinics located across Singapore, it provides primary medical services. It also provides specialist and tertiary care services through its flagship Raffles Hospital in North Bridge Road. On the regional front, it also operates three clinics in Hong Kong, including the airport clinic at Chek Lap Kok. We believe their earnings profile make them one of the most diversified healthcare groups listed on SGX.

Even amidst a global recession, the demand for healthcare services is likely to be undulated, especially that of essential healthcare. About 60% of its Group revenue and 70% of its profits are derived from its hospital services (tertiary and specialist) with the rest contributed mainly by primary healthcare (clinics). We believe Raffles has an invaluable network with corporate clients, which provides about 2/3 of its clinic patients.

For healthcare Groups, staff remuneration is typically a major cost component and is a critical factor when analyzing profitability profile. In this aspect, Raffles Medical is one of our preferred business model, with staff costs constituting about 50% of revenue and a lower-than peers variable remuneration factor. In this model, when top-line earnings grow, the Group is better able to extract profitability as the spread between revenue and staff costs widen, enriching shareholders’ returns.

On expansion plans, the Group has targeted a well-balanced growth, which includes 1) The expansion of its primary care network via more Raffles Medical clinics. 2) Growing its specialists and hospital businesses via opening sub-specialty clinics such as Raffles Fertility Centre and expand international market efforts. 3) Growing its healthcare insurance business. In terms of regional expansion, management has also indicated they will be interested in setting up medical centres and clinic chains in gateway cities and looking for opportunities in large markets such as China and India.

The Group has an unblemished record of profitability every year on the back of increasing revenue since 1994. Revenue and profit after tax grew 17% and 27% CAGR during this period respectively. Since 2002, profitability has increased exponentially from S$4.51m to S$31.66m on the back of its strong expansion. Hospital occupancy is currently running at 50-60% against the peak of 80%, with further room to expand. During our discussion, management indicated that they are very optimistic of further growth even in this economic climate.