Bleeding Stocks - Raffles Medical [Part 2]

This is the second series of "Bleeding Stocks" where KPO will be looking at 老鼠屎 (rat shit) dragging down the overall performance of his portfolio. Do check out part 1 if you have not :)

Bleeding Stocks - QAF [Part 1]

QAF share price dropped because Q2 results were pretty bad. On the other hand, Raffles Medical Q2 results were much better as compared to QAF - Raffles Medical Group's Q2 profits marginally higher. Let's take a closer look at the financials.

There is almost no change but the same cannot be said for its share price. Based on its last closed price on 2017-08-11 of $1.13. It has fallen by 25.4% as compared to the price one year ago ($1.515 on 2016-08-11). What has changed to warrant such a huge drop? No idea. Your guess is as good as mine - a few analysts sell reports + not meeting its growth expectation?

Similarly, I compiled the last 5 years of financial results and you can refer to it here. Raffles Medical has been growing at a steady rate with increasing NAV and operating cash flow over the years. There was a share split (3 for 1) in May 2016 hence the numbers had to be adjusted slightly. Based on the data, it seems that Raffles Medical has been trading at a average PE of 31.7 and PB of 4.109. Assuming that EPS and NAV remains constant (2016 EPS $0.040 and NAV of $0.395), the average PE of 31.7 will translate to $1.268 and PB of 4.109 will be $1.624.

Some of you may think that PE of 31 is way too high but if you compare it against the industry - Healthcare Providers and Services, you will see that it is a premium one has to pay for defensive healthcare related stocks.

Based on both shareinvestor.com and SGX StockFacts, Raffles Medical currently trades at a PE of 28.485 is which is much lower than the industry average. Interestingly, Raffles Medical is the second largest company with a market capitalization of $2,001 billions. The largest one being IHH Healthcare Berhad with $15,438 billions trading at a PE of 75.806!

This is a summary of what to expect in the future and how Raffles Medical will continue to grow according to the latest Q2 report:
- RafflesMedical expanded its network of clinics in 2017 by opening a new clinic at Hillion Mall in Q2 2017
- Northpoint will also be re-opened in September 2017. Existing clinics at Asia Square, Clementi and Nex have been relocated or refreshed in Q2 2017
- RafflesHospital Extension’s completion and opening in Q4 2017
- Changi Airport Terminal 4, Transit 4, and two new in-house clinics in Dover and Tampines respectively, are scheduled to open in Q3 2017
- RafflesHospital’s Emergency Care Collaboration with the Ministry of Health (MOH) was extended in June 2017 for another 5 years, allowing SCDF ambulances to continue to bring patients to RafflesHospital for subsidised care
- Construction of RafflesHospital Chongqing (operational by second half 2018) and RafflesHospital Shanghai (operational by second half 2019) is progressing according to plan

At the end of the day, KPO finding Raffles Medical undervalued does not mean anything. However, when you have the founder/CEO Dr. Choon Yong Loo increasing his shares at $1.44 last year (2016-06-29) and at $1.26 this year (2017-06-30) together with a major fund buying it at $1.21 on 2017-08-07. It probably means something. lol.

Since this is the 2nd series, let me end off with 2 charts. Raffles Medical has been on a down trend since last year. The current support is at $1.10 and $1.09 while resistance is at $1.17 and $1.21. Extremely bearish as price is still trading below all the moving averages.

However, do you see a tiny hammer supported by significant volume? The RSI (Relative Strength Index) seems to indicate that the stock has been oversold or is currently in a undervalued condition too.

With the above fundamental analysis, KPO queued for 6,000 units at $1.10 yesterday (2017-08-11) and my orders were filled :) This brings my average price to $1.308 and loss to -12.92%. Patched my wound in 1 day or would it be a falling knife? Only time will tell. lol.

Thanks for reading! Hope you all enjoyed it. Stay tuned for Part 3! (May not be anytime soon since I sort of mentally write off that investment. lol.)

Bleeding Stocks - QAF [Part 1]

Our portfolio has been doing pretty well but there will always be 老鼠屎 (rat shit) dragging down the overall performance. I am not too worried because I have seen worst. lol.

1. QAF

The first thing that came to mind would be the latest quarter result - QAF reports 72% fall in 2Q17 earnings to $8.1 million. I looked at the numbers and it is indeed quite depressing. However, the numbers can be quite misleading.

The numbers highlighted in yellow is where the 72% drop comes from. One has to note that part of the huge drop can be attributed to the one time "Exceptional items" gain due to the sale of 20% stake in Gardenia Bakeries (K.L.) which is missing this quarter. On the bright side, revenue actually increased by 1% which was offset by higher costs/expenses, taxes and a series of unfortunate events:
- Pork prices in the industry have fallen by approximately 20% in the first half of 2017 due to increased competition from the general oversupply situation
- Higher advertising and promotion expense due to launch of new products and heightened competition in the Philippines
- Higher truck rental expense from the increased distribution routes
- Foreign Exchange loss due to the depreciation of the Group’s AUD denominated assets against the Singapore dollar
- and much more. lol.

KPO then spent some time to compile the financial results achieved by QAF in the last 5 years.

Note that QAF has a very low PE in 2016 due to the "Exceptional items" mentioned above which resulted in a much higher EPS. Once excluded, you will see that QAF has been trading at an average PE of 12.931 and average PB of 1.312 from 2012 to 2016.

In the worst case scenario, I will simply assume that the next 2 quarters will be as poor as this quarter (EPS of $0.014) and based on the last closed price of $1.205, the PE will be 17.985 which is pretty high hence the heavy sell down? Will it get worst than this? I dun know but I would hope that higher advertising cost will be translated to higher sales in the next quarter. Furthermore, there is a proposed listing of Rivalea on the Australian Securities Exchange which will result in QAF receiving A$52 million.

Fundamentally, QAF remains to be an excellent business consistently generating free cash flow and rewarding shareholders with suistainable dividends (DPS remains lesser than EPS even in the above worst case scenario).

At what price should one buy QAF then? I dun know. At a price you are comfortable with! Any investment at the right price is a good investment! lol. Buying it at $1.20 would mean you will be looking at a 4.2% dividend yield. Based on the very simplified average PE and PB ratio computed by me, any price between $0.866 and $1.225?

Although I believe more in the numbers, I will end off with a chart. You can see the long term trend is up and QAF is currently at its first support $1.205 and the next support is at $1.15. With 50 MA crossing below 200 MA, it has formed a death cross! Furthermore, the price is now below all the moving averages. Extremely bearish!

This is the google spreadsheet if you want to take a closer look at the numbers. Ending off with numbers still better. lol.