Raffles Medical reported their FY2023 results yesterday morning. Revenue and net profit dropped by 16% and 37% respectively. Given the Q3 update, the drop was unexpected. I was curious though why the drop in net profit is so much higher in second half as compared to the first half. I mean the decrease in Covid related activities should have affected 1H too.
A look at the P&L statement shows that there is a marked increase in insurance service expenses. It was about $60 mil in 1H but increased by around 20% to $72 mil in 2H. On a full year basis, this expenses has increased by a whooping $40 mil, which definitely has an impact on the profit.
The question in my mind is whether this expense will continue to stay at this level going forward or are we going to see it creeping up in the coming years?
With new information, I think it is necessary to think how things would be like for Raffles Medical post Covid. Before that, I do think they have done well during the pandemic. They adapted and responded well to the crisis, and even did better than pre-Covid! Who would have thought of that, at the beginning of the pandemic?
A comparison of their current number to FY2018 shows that revenue and net profit, compounded at 7.6% and 5.0% respectively. It looks low but do not forget that during this period, they have built 3 hospitals in China! And if we look at free cash flow, it has stayed pretty stable compared to last year and has increased by 170%, compared to FY2018.
Will growth come back in the next few years?
My take is healthcare services segment should be stable. Hospital services should continue to see growth but I am unsure how much longer it would take before hospitals in Shanghai and Chongqing to breakeven. Also, can the increase in insurance expenses be contained?
I decided to sell 1/3 of my holdings as I was over optimistic of their growth last year. I thought the growth in their hospital segment could mitigate the drop in healthcare segment. By selling part of my holdings, the new position would be a better reflection of where I think they stand among my growth counters.
As for Untied Hampshire, I decided to divest it fully since I have my doubt. And leaving it in FSMOne US Auto-Sweep account is not a bad alternative, for the moment.
Referral
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Trust Bank (code: 1X9DDP1V, additional $10 Fairprice voucher)
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