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Raffles Medical Group: 1H 2025 Performance Review · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  Welcome to the Deep Dive. Today, we're putting Raffles Medical Group RMG into the microscope.
• 0:14
  Specifically, we're going to peel back the layers on their unaudited results
• 0:18
  for the first half of 2025.
• 0:20
  Right. The 1-H results. Exactly. Our mission today, unpack the core financials,
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  really dig into why things look the way they did, you know, the good and the
• 0:29
  maybe less good, and then look ahead.
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  What's the outlook? And we're basing this on their official media release and
• 0:34
  the interim financials they put out, correct?
• 0:36
  That's right. Straight from the source. Okay. So let's kick things off with the big picture.
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  How did RMG look overall in the first half? Well, starting at the top.
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  Yeah. The top line. Group revenue grew 3.5%, hit S378.4 million dollars.
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  That's up from about $366 million same time last year.
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  So steady growth there. Steady growth, yeah. But what really caught my eye was the profit side.
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  Group profit after tax grew faster, 5.0%, landing at $32.5 million.
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  Okay. And Pat TMI profit after tax and minority interest, the number a lot of
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  you focus on that rose to S, $32.1 million.
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  A 4.8% improvement year on year. Right. Even diluted earnings per share saw
• 1:16
  a nice jump, 6.8%, up to 1.73 cents.
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  So revenue's up, but profits seem to be climbing even quicker.
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  What's the first signal that sends to you?
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  Well, that's a sharp observation. The fact that profit growth,
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  you know, 5% after tax, 4.8% for PTMI, outpaced that 3.5% revenue growth.
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  That's pretty significant.
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  It's not just about bringing in more money. It suggests something deeper might be going on.
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  Like what? For a healthcare company like RMG, it usually points to one of two
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  things, or maybe a bit of both. Either they've gotten more operationally efficient,
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  maybe managing costs better.
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  Or they've shifted their business mix, maybe focus more on higher margin services.
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  Basically, they're squeezing more profit out of each dollar of revenue.
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  That's generally a good sign. Discipline management. Right.
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  And beyond the income statement, how's the balance sheet looking?
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  Also looks pretty solid. They had
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  S334.2 million dollars in cash and cash equivalents at the end of June.
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  That's a, well, a very healthy cash pile. Take some options.
• 2:14
  Exactly. flexibility for investment or just navigating bumps in the road.
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  And they generated as $56.6 million in operating cash flow during the period.
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  That shows the core business is.
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  Throwing off cash nicely, which is fundamental, really.
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  Okay, that's a great initial read, growing smarter, strong cash flow.
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  But to really get the why, we need to break it down by segment,
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  right? Not all parts of the business fire on all cylinders. Absolutely.
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  You need to look under the hood. So where should we start? What was the standout?
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  Well, the real engine here seems to be their hospital services division. That's the core. Okay.
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  Revenue there grew 3.8% to $774.0 million.
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  Good, solid growth. But here's the kicker. The profit for that division surged,
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  I mean, really jumped, up 24.3% to $17.7 million.
• 3:03
  Wow, 24.3%. That's huge. It is. That's a massive leap in profitability from their hospitals.
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  It suggests more than just more patients, maybe more complex cases,
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  higher value procedures, or just really tight cost control in the hospitals.
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  Yeah, that kind of jump has to be driving the overall bottom line significantly.
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  Definitely. It's a major engine. Now, compare that to health care services,
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  think clinics, general medical stuff. More modest growth there.
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  Revenue up only 0.6% to S142.2 million dollars.
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  Profit was S24.9 million dollars. Still a big chunk of profit, mind you.
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  But the growth just wasn't as dynamic as the hospitals. Okay,
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  so hospital services is the clear star performer on profit growth.
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  But you mentioned earlier something about another segment showing a remarkable
• 3:49
  improvement. Ah, yes. That would be Raffles Health Insurance, RHI.
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  Now, this segment, historically, it's been a bit of a drag.
• 3:56
  Operated at a loss, which isn't uncommon for newer insurance arms while they
• 3:59
  scale up. Sure, it takes time. But their performance this half was,
• 4:03
  well, strikingly positive.
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  RHI's revenue grew a decent 10.0%, reaching S94.9 million dollars.
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  Okay, good growth there, too. But more importantly, they slashed their operating
• 4:13
  loss, cut it by 51.7%, down to S3.1 million dollar loss, compared to a $6.4
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  million loss in the first half of last year. Whoa, cut the loss in half. How'd they manage that?
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  The report points directly to more rigorous claims, adjudication,
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  and prudent expense management.
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  Basically, they got smarter and tighter with insurance claims,
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  maybe better at spotting ineligible claims, processing things more efficiently.
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  And at the same time, they cut their own internal costs. So better underwriting and cost control.
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  Exactly. A real effort to stem the bleeding and get that segment closer to break
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  even. And that obviously helps the whole group's profit picture quite a bit. Yeah.
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  Turning that around is definitely significant. Does it feel like a one-off cleanup?
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  Or more like a fundamental shift? Good question. The phrasing,
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  more rigorous, prudent expense management, suggests it's likely more fundamental.
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  New processes, tighter controls. It sounds like they're aiming for long-term
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  sustainability there, not just a quick fix. Got it.
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  That's a key improvement then. Yeah. Okay, let's pivot. China.
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  That's been a big strategic push for RMG for a while now.
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  How are things looking over there? Right. Raffles China Healthcare.
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  The revenue in local currency, Renminbi, was actually up slightly.
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  Went from CNY $162.9 million to CNY $163.6 million.
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  So a marginal gain locally. Okay, so growing on the ground.
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  Yes, but here's the currency impact you often see.
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  When you translate that back into Singapore dollars for the group's consolidated
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  report, it actually showed a slight decrease from $30.5 million down to $29.9 million.
• 5:48
  Ah, the FX headwinds. Precisely. It can mask the underlying operational performance in the local market.
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  So while the SGD number dipped, the reality in China was slight growth.
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  Important context. And qualitatively. Yeah. The brand seems to be gaining traction.
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  Yeah. The report mentions the Raffles Hospital brand has gained wider recognition
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  and trust among patients in China.
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  That's crucial for the long game in a market like that. Definitely.
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  And they're managing costs there, too, right? Try and reduce those initial losses. Absolutely.
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  The report highlights that cost-saving measures they put in place earlier are
• 6:22
  working, helping to cut down the initial losses for the China segment.
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  It shows discipline, not just growth at any cost. They're building carefully.
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  Okay, makes sense. So connecting this all back, if we look beyond the main business
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  lines, what other specific items in the financials kind of nudge the overall results?
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  Well, digging into the details, other operating income was down.
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  It seems that was mainly due to getting a lower payout from the government's
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  wage credit scheme this time around.
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  OK, so less government support hitting the income line. Right.
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  On the finance side, bit of a mixed bag, but mostly positive.
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  Finance expenses dropped significantly, down 32.4 percent, mainly because of
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  lower interest rates on their loans.
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  That's direct saving. Nice tailwind there. Definitely. But finance income also
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  decreased by 16.3 percent.
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  Could be lower returns on their cash, maybe slightly less cash available to
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  earn interest compared to last year.
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  OK. Anything negative hitting the profit directly? Yes. One item stood out.
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  Impairment loss on trade receivables, basically provisions for bad debts.
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  That jumped quite a bit to just over S1 million dollars from about S300 thousand dollars last year.
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  Ouch. What does that usually signal? Could be a few things.
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  Maybe more difficulty collecting from patients or perhaps delays from insurers paying up.
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  It's something to watch because it hits the bottom line directly and might indicate
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  some friction in the billing or collection process.
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  Right. A potential warning flag there, even if small, relative to the overall profit.
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  Now, what about the balance sheet itself? Any shifts there we should note?
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  Well, the net asset value per share dipped slightly, about 2.5 percent down to 55.06 cents.
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  Not dramatic, but a small decrease in book value per share. OK.
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  And there was that big drop in total comprehensive income down 32.1 percent. That sounds bad.
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  It sounds bad, but you have to unpack it. The report clearly states it's mainly
• 8:13
  due to foreign currency translation differences, foreign operations.
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  Back to the currency effects again. Can you quickly explain why that doesn't
• 8:20
  mean the actual business suddenly got weaker? Sure. It's basically an accounting adjustment.
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  Imagine their China hospitals earn profits in yuan.
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  When RMG brings all its numbers together in Singapore dollars,
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  if the yuan weakened against the Singh dollar during that period,
• 8:34
  the reported value of those yuan profits shrinks in SGD terms.
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  So it's a paper loss on consolidation. Exactly.
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  It's not cash leaving the business. It doesn't mean the hospitals in China did poorly.
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  It just reflects how exchange rate moves affect the reported value of foreign
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  assets and earnings in the home currency.
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  Impacts comprehensive income, but doesn't really hit the underlying operational
• 8:55
  health or cash flow. Got it. Important distinction.
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  Okay, so pulling it all together, solid hospitals, improving insurance arm,
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  navigating currency, and some receivables issues.
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  What does this mean for the rest of the year and beyond? What's the outlook?
• 9:11
  Well, the board seems pretty confident.
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  They explicitly state they expect the group to remain profitable in FY 2025,
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  assuming things stay generally as they are.
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  Standard disclaimer, but a positive baseline. Right. And they put this in the
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  context of the broader health care sector, which they describe as less cyclical
• 9:27
  and having stable demand and structural growth drivers. Like aging populations.
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  Exactly. Even with global trade tensions, geopolitical uncertainty,
• 9:35
  market volatility, people still need health care. it provides a strong foundation.
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  So while there are external risks, the fundamental demand is pretty solid.
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  That inherent resilience is definitely a plus. But they're not just coasting,
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  right? What are they actively doing strategically? No, definitely not coasting.
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  Internally, they're really focused on efficiency. The report talks about optimizing
• 9:56
  resource utilization, streamlining care delivery processes, and driving specialty-driven services.
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  Basically, getting leaner and focusing on high-value areas to improve margins. Makes sense.
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  And they mention constantly innovating to meet changing patient needs,
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  especially with Singapore's aging population, adapting to new health trends. And externally.
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  Those China partnerships sound significant. Very significant.
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  They signed deals with two major hospitals, Renji and Shanghai,
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  and first affiliated in Chongqing.
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  The goal is to create a new model for medical cooperation between Singapore
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  and China. Aligning with China's own health care goals. Precisely.
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  It ties into the Healthy China 2030 strategy. That's a smart move,
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  aligns them with national priorities, potentially smoothing the path for growth.
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  Dr. Liu Chun-Yong, the chairman, summed it up well, saying these partnerships
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  position them to extend the Raffles brand across the region. It's ambitious.
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  That ambition seems mirrored in how they're handling capital too,
• 10:54
  returning value to shareholders. Yes, definitely.
• 10:57
  They revised their dividend policy back in February. The plan now is to pay
• 11:01
  out at least 50% of sustainable earnings
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  annually, gives shareholders more predictability. And the buyback.
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  They also plan to buy back up to $100 million of their own shares over the next two years.
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  That's often seen as a signal of confidence from management.
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  They think the stock is a good investment, reduces share count,
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  potentially boosts CPS.
• 11:19
  And they're already acting on this. They are. In the first half of 2025,
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  they paid out S$46.3 million in dividends and spent $7.5 million buying back shares.
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  So they're putting their money where their mouth is, returning capital as promised.
• 11:35
  Okay, so to wrap up, the picture from this first half seems to be one of,
• 11:39
  well, solid underlying performance.
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  Hospitals driving profits, insurance turning a corner.
• 11:44
  There are some headwinds like FX and maybe collections needing a close eye.
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  But the core business looks strong and they're clearly focused on efficiency
• 11:53
  and strategic growth, especially in China.
• 11:55
  Yeah, and all within that resilient health care sector. They seem to be managing
• 11:59
  the controllables well and positioning strategically for the future.
• 12:03
  It paints a picture of a company navigating challenges, but definitely moving forward.
• 12:08
  It does. And reflecting on all this, it leads to an interesting thought for
• 12:11
  you, the listener, to mull over. Go on.
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  As we see this structural growth in health care pretty much everywhere,
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  how might RMG's specific strategy, this dual focus on expanding regionally via
• 12:23
  partnerships, particularly in China, and really optimizing things internally,
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  how might that position them to grab an even bigger slice of this growing pie?
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  It's a big question, but given their track record and current strategy,
• 12:35
  they seem well-placed to keep pushing forward.