Investing in Raffles Medical Group.

I revealed earlier in the year that I have a few hundred drafts in my blogging account, these are blogs which I started and did not finish.

It is terrible, I know.

There were always so many things going on in my mind and I am sure they contributed to my sleeping problem in the past.

Things have improved for me on the mental health front as I try not to think too much these days.

Anyway, this blog on Raffles Medical Group (RMG) was one of those drafts. 

It was more than a year ago when I started this.

OK, enough rambling.

When I looked at RMG together with Healthway Medical many years ago at around the time of  the Global Financial Crisis, RMG's historical PE ratio was 21x.

That provided a guide for me as to what might be a fair price to pay for a stake in RMG today if there has not been any major changes to its business.

With a PE ratio of about 33x in early 2017, I decided that RMG definitely wasn't cheap.





I thought if its share price should decline by a third, we would see a price movement approximately to its mean.

At the time in early 2017, RMG was trading at about $1.50 a share.

So, a one third decline in share price would give me a target buy price of $1.

Pay $1.50 a share?

Not for me.





Investors who invested in RMG at a PE ratio of 30x or higher had to expect RMG to register phenomenal growth in earnings year after year.

Otherwise, why would they value RMG so highly?

Personally, I could not see phenomenal growth in RMG's earnings happening especially with all the capital expenditure (CAPEX) and also the expected increase in operational expenditure (OPEX).





As RMG's share price plunged over time, I received emails from some readers who asked me to talk to myself but I declined.

They should talk to themselves and ask why did they invest in RMG at higher prices?

Were they investing for growth or were they speculating?





Believing that RMG would deliver phenomenal growth in earnings and accepting a very high PE ratio, they should understand that if growth should falter, Mr. Market could go into a depression.

This is a key risk factor when paying prices which reflect high expectations for growth and this is usually represented by a high PE ratio.

Of course, Mr. Market's optimism could create opportunities for investors of the more patient variety who prefer getting more value for money.

After all, the swing from optimism to pessimism could be quite dramatic and we really should be buying when Mr. Market is feeling pessimistic.





Don't blame the analysts, professional or amateur (including bloggers).

Good or bad, they probably had their plans.

Ask what is our plan?

The truth is RMG is facing some challenges.





With medical tourism in Singapore facing stiff regional competition and ongoing CAPEX with attending start up costs to be seen in their new Chinese hospitals through 2018 and even 2019, earnings at RMG would probably take not one but several hits.

It would, therefore, be a good idea to demand a bigger margin of safety which, of course, means demanding a lower entry price, everything else remaining equal.





Although RMG has a good track record of growing value for shareholders over the years, if we want a better outcome for our investment, it would make sense to pay a more reasonable price.

What is a more reasonable price?

Regular readers know that one method I use is to compare with crisis valuation to help determine if a stock is cheap.





RMG's lowest PE ratio was about 14x. This was during the GFC (2009). So, assuming earnings bottom at 4c a share, at about 56c a share, RMG would hit crisis valuation.

Not expecting another GFC, I decided that paying anything below its historical mean (21x) is probably a bargain.

So, paying anything below 84c a share should provide me with a good starting point.





In September 2017, when RMG hit $1.03 a share, I thought it was still expensive. 

Assuming an EPS of 4c, PE ratio was almost 26x.

Of course, Mr. Market didn't care what I thought and RMG saw its share price recovered.





I decided then that perhaps I should not wait for 84c and that I could nibble if it should ever touch $1 a share (i.e. PE ratio of 25x)

A PE ratio of 25x is significantly lower than 33x but, to be honest, I would still be buying into the expectation that RMG's Chinese investments would do well and lift earnings in a spectacular fashion in future.

If nothing goes terribly wrong, perhaps, the year 2020 is when earnings would improve more meaningfully for RMG.





So, investing in RMG now is to invest in growth but expectations should be realistic.

At $1 a share, dividend yield is about 2%.

So, it probably wouldn't appeal to the purist income investor. 





I got my foot in the door by paying $1 a share but unless the price goes lower from here, I am keeping my investment relatively small.

Related post:
Investing philosophy is timeless.

Healthway Medical: A seven months journey

One of the best performers in my portfolio in recent times has to be Healthway Medical. I started accumulating shares in the company in June 2009 at 10c and I was actively contributing in various forums on why Healthway was a value buy and how its intrinsic value should have been higher. I walked the talk and was actively buying up more shares in Healthway Medical over time and my last purchase was in December 2009.

I had to constantly explain to people why I was so convinced that Healthway Medical was a value buy. Most were more attracted to Parkway or RMG. To be fair, there were believers and there were skeptics. Here were some of my replies (edited for brevity in some cases):

7 Nov 09:
I started accumulating shares in Healthway earlier this year at 10c.
Fundamentally, a strong company....... Successfully breaking the top of the cup formation seen earlier at 14.5c would give an immediate target of 17c and an eventual target of 19.5c. Patience will be rewarded.

9 Nov 09
I am not too concerned about Healthway paying little or no dividend. This is a growth stock, not a dividend stock. I opted for scrip dividend instead of cash the last time.

There will always be growing pains and uncertainty. That's why Healthway is trading at 11x PE while RMG is trading at 19x PE. There is a discount for risk but I feel that it's too heavily discounted. A 17c target which translates into a PE of 14x for Healthway is realistic.

23 Nov 09
Healthway's chart is interesting. Its price is going through a protracted consolidation period after the cup formation was completed in August. 9.5c is the lowest point of the cup while the brim is at 14.5c. The halfway point is 12c.

The lowest price in the consolidation period since August is 12c in late October. This cup with a very long handle is seeing volume dwindle over time. As the MFI and Stochastics show, there is simply no momentum in this counter since mid August. However, OBV shows consistent accumulation and this picture has not changed.

This is a counter for long term investors but if I'm going to do a bit of crystal ball gazing, I am willing to hazard a guess that price might see a significant upmove end of this year or early next year. Rising 20wMA and 100dMA at 12.5c should limit any downside.

2 Dec 09
Some say that Q&M is overpriced. I am of the opinion that Healthway is too cheap and should trade closer to Q&M's PE. A PE of 14 for Healthway translates into a price of only 17c. At 19.5c, the PE would be about 16.5 which, I feel, is about right. The current weakness in Healthway's price presents an opportunity to accumulate and I've done so.

4 Dec 09
Insiders can sell shares in the company for many reasons. Maybe, they are buying a new property or meeting some other expenses.

I am not usually concerned when one or two insiders sell some of their shares. I will, however, take notice if insiders are selling en masse and in larger percentages which is not the case here. In the last dividend payouts, insiders opted for scrip dividends rather than cash. Updates on 20 Nov 09. I did the same.....

13 Dec 09
...How do I usually decide on whether a company is a worthwhile investment these days? Firstly, I look at the sector versus the economy. Secondly, I look at the company's numbers to ensure that it is not over-valued, that it is profitable, that it is not too highly geared and that it has good cashflow. Thirdly, I compare the company's numbers to its peers. There are other things which I might look at in time but these 3 points form the core of my fundamental analyses. Then, I use technical analysis (charting) to decide on fair entry points.....

13 Dec 09
I only took notice of Healthway as its price was recovering from its bottom this year. I was attracted to it because of its dominant position in the domestic primary healthcare sector. This, I viewed as a strength in times of recession as it did not depend so much on medical tourism like RMG and Parkway do. It is a business that, even if managed by a conservative management, would continue to benefit from strong cashflow and would in time amass a cash hoard. My first purchase was at 10c. This was below its NAV at the time.

Since then, the more I learned about the company and the business, the more convinced I am about the future of the company. My concerns regarding the fundamentals of the business have been mostly addressed.

In terms of the price, it is seeing some weakness. I believe that 12c should hold. It is exactly the halfway point of the cup pattern which I identified earlier. Price action might be going through what Darryl Guppy calls "correction using time".

You have asked me questions on the history of the company but I'm afraid I do not have the answers as I'm quite a new shareholder (and do not have the emotional baggage and knowledge of older shareholders).

Taking a leaf from Dr. Tony Tan's book, I do know that I have taken care of the downside in my fundamental analysis of the company. I will leave the upside to take care of itself. I can wait.

On Christmas Eve of 2009, I wrote an article in my blog titled Healthway Medical: Growing a defensive business. My blog was still very new at the time but I've been a firm believer for 6 months by then.

I have, by now, divested 50% of my position in Healthway Medical, selling at every resistance level which is my style. The technical target of 19.5c has been achieved in just one week. I am still rubbing my eyes in disbelieve, to tell the truth. A correction at this point in time would be healthy. Of course, Mr. Market is always right and my opinion should not matter. To one and all, have a good week ahead! :)

Q&M Dental Group

Q&M Dental Group's share price has more than doubled since its IPO a month ago. Yes, more than doubled! IPO price was 27c on 26 Nov 09. Price closed at 56c today. >100% gain in slightly more than a month. Phenomenal!

I just looked on in disbelieve as the price kept forming new highs. Based on FA, the valuation is simply too rich compared to peers in the medical services sector in Singapore.

With an estimated diluted EPS of 1.6c per annum, the PE for Q&M Dental Group at 56c is about 35x! This is much higher than Parkway's 25x at $2.92 and Raffles Medical Group's 20x at $1.44 and these are large medical services providers! Compared to a peer closer to its size, Healthway Medical's PE at a price of 12.5c is only 10.4x!

Let's compare Q&M Dental Group with Healthway Medical, an undervalued counter in Singapore's medical services sector, in my opinion. Q&M Dental Group has more than 30 clinics islandwide but this is dwarfed by Healthway Medical's more than 80 clinics islandwide. In 3Q09, Q&M Dental Group's profit after tax went up 8.7% to $1.9m while revenue went up by 1% to $14m. Healthway's profit after tax went up 44.7% to $3.98m while revenue went up by 6.2% to $25.32m!

On 12 Dec 2009, shares of Q&M Dental Group were included for trade on the Freiverkehr in Germany. Perhaps, this has a large part to play in its current rich valuation. Fundamentally, that the share price is trading at a PE so much higher than Parkway and Raffles Medical Groups' is mind boggling. Will we see a correction or will Q&M Dental Group's share price continue to astound on the upside? Your guess is as good as mine but I'm not buying.
Healthway Medical: Growing a defensive business

Three portfolios and three counters: future gains and passive income

I've been investing in the stockmarket since my university days when I was basically clueless and had some silly notions about investments. Today, I am less clueless and less silly but I'm still human. Emotions, they make us human and, yes, fallible.

To make it easier for me to manage my investment portfolio, I've divided the counters into 3 sub-portfolios:


1. Rubbish - This portfolio is similar to what Citibank did by taking out their toxic and non-performing assets and putting them in a "bad" bank. I've made many mistakes in investments and this portfolio holds my mistakes. Some may ask why I do not just close this portfolio and not look at these counters anymore. Well, human beings are forgetful. I keep this portfolio to remind myself of my follies and, hopefully, will not make the same mistakes. Examples in this portfolio: MPSF and Ferrochina.

2. Alive & Kicking - This portfolio holds shares of companies which were bought before the crash. The businesses are sound and ongoing. They also pay good and consistent dividends. In a bear market, none is spared. Their prices suffered along with the rest when global markets crashed. They have now recovered substantially. Examples in this portfolio: SPH and First REIT.

3. Current - This portfolio holds shares of companies which were bought after October 2008. I selected counters such as Hyflux Water Trust and First REIT based on their defensive business models and high dividend payouts and bought at very depressed prices. Some such as Epure which I've divested totally have been extremely rewarding. I have counters in this portfolio which I will no longer trade but hold for consistent dividend payouts.

Three counters which I will continue to actively monitor are:

a. A growth counter: Healthway Medical - Currently at 12c. In comparison to its peers, it is inexpensive whether you use PE or P/B ratios. If we look at their results in the last quarter, they outperformed Raffles Medical Group in terms of percentage growth. I continue to believe that a price of 17c would be barely fair. Over the next 12 months, I would be surprised if investors in this counter do not make a handsome profit. A strong growth story makes this a buy and hold counter for me. Healthway Medical: Growing a defensive business

b. A cyclical counter: Golden Agriculture - Currently at 49c. This is the second largest crude palm oil (CPO) producer in the region. It is heavily levered to the price of CPO compared to Wilmar which has a greater percentage of income from downstream activities. Whether we look at PE, ROA, ROE or Gross Margin, Golden Agriculture looks better than Wilmar. With the improving global economy, the demand for CPO has increased. With the rising price of crude oil, there will be a further increase in demand for CPO as an important source of biofuel. The journey up will be choppy which makes this a perfect counter for trading. Charts for Golden Agriculture

c. A yield counter: Saizen REIT - Currently at 15c. I thought I would not be able to find another severely undervalued REIT in Singapore after the REIT sector ran up strongly in the last 9 months. I've written quite a bit about this in another entry and so I shall not elaborate here. I am accumulating units in this REIT to form the bulk of my future passive income generation. This is another buy and hold counter for me. Passive income with high yields: Saizen REIT

Healthway Medical: Growing a defensive business

Healthway Medical has taken definite steps to expand into China with their platform in Shanghai. It has recently proposed to issue rights for further expansion into other Chinese cities. It will not remain purely a Singapore brand for long.

Healthway has been clever to identify and fill areas in healthcare services which are underserved. Their business model also creates strong cashflow. This gives a solid foundation for growth without being too reliant on financing.

Healthway has a historical PE of 13 (@13c). Parkway has a historical PE of 54.8 (@$2.41). RMG has a historical PE of 21 (@$$1.39). Figures by DBS Vickers. Parkway's 2010 forecast PE is 22. RMG's is 18. There is no forecast for Healthway.

However, if I were to hazard a guess, Healthway's PE would improve at the same pace as RMG's, if not more, looking at both parties' 3rd quarter results.

I know that the management has proven themselves so far to be astute and aggressive. The business is a defensive one with stable and growing demand. The management is not resting on its laurels and have grown the business rapidly. The business model enjoys a strong cashflow. Directors are committed to the business and have opted for scrip dividends instead of cash. This has diluted the NAV per share to <9c though. Healthway is a growth company in a defensive business. This combination, in my experience, if led by a strong, business minded management, is one for success. Healthway Medical's growing in China