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QuestionsCategory: Financials QuadrantWhether to give company benefits of doubt when they failed to meet certain financial criteria
Jun Song Lim asked 3 years ago

Let say now I realize the company raffles medical group ltd that I bought few months ago(before I join investment quadrant) met both the requirements for business and management quadrant but has failed 2 of your financial quadrant checklist(ROE and gross profit margin) is it wise to give the company benefits of doubt or consider cutting loss by selling the stock straight away? 
 
Cause from my understanding the decrease in ROE and gross profit margin is mainly due to their hospital expansion in china(which require large capital) and increase direct labor costs(the need to quickly hire medical professionals).

1 Answers
Victor Chng answered 3 years ago

Hi Jun Song,
 
Sometime, the company financial may be down for a few years because the company is investing for the future and it may take time for the result to improve. 
 
Even if the company financial is down like raffles medical due to investing for the future, you still can make a profitable investment out from it. Assuming that the business and management are intact. The last key is whether did you pay the right price which buffer all the possible risk of Raffles medical. 
 
 

Victor Chng replied 3 years ago

Can you share with me some of the risks when you invest in Raffles Medical ?

Jun Song Lim replied 3 years ago

1. As mention in the question, one of the risk is increasing staff costs(the need to quickly hired professionls from different diversities)due to major expansion which may affect the profit margin

2. China government has the tendency to change policies which may affect the business of raffles medical ltd. Other risks in china includes, the local customer(china) preferences and time taken to build reputation in china to gain patient referral.

3. Healthcare sector in singapore would be diluted in the near future as more public hospitals are opening up.

Victor Chng replied 3 years ago

Thanks for sharing the risks Jun Song.

The important part is when you pay for the price for raffles medical have you account for the following risk

1.What if China business did not work out? (Hence, your intrinsic value (IV) should exclude the China growth story)

2.I think some part of Raffles medical business is from medical tourism. With the strengthening of Singapore Dollar it seem like that patients are going to other countries hospital like Malaysia or Thailand. Hence, your IV should account this factor too

https://sbr.com.sg/healthcare/in-focus/singapores-medical-tourism-ambitions-falter-malaysia-steps

3.In the past, Singaporean are more prone to consult the doctor or have their health check because of the insurance policy that they owned and they know that they will be covered. Moving forward, the insurance policy had changed (https://www.straitstimes.com/singapore/policyholders-worried-if-changes-to-integrated-shield-plans-affect-them) and Singaporean are more careful in spending on medical as they cannot fully claim the insurance and have to fork out some money.

If you have account all this scenario when you purchased Raffles Medical. More or less you are covered in term of the valuation then you just need to wait out until their China business turn out well.

Jun Song Lim replied 3 years ago

Alright.Thanks for the useful tips victor will take note of it.

Jun Song Lim replied 3 years ago

Alright.Thanks for the useful tips victor will take note of it.

Victor Chng replied 3 years ago

Welcome :)