Last September, I have written why I buy RMG at a high valuation of 37x PE. You can read about it here. The group has just announced its results this morning and it is within my expectation.
Revenue has grown 15% but net profit grew by 1.3% only. As mentioned earlier, I expected its earning to be lumpy for the next 2 years due to its expansion. Staff cost which takes up about 50% of the revenue has increased by 19%. Having said that it is heartening its operation cash flow has increased by 8%.
I took a look at its performance in 2001 when Raffles Hospital opened. That year, they made a loss. The loss was reversed the subsequent year and from 2002 to 2012, RMG earning grew at CAGR of 29%. With a much stronger balance sheet now, I doubt they would go into a loss but a dip in net profit in 2017/2018 is definitely possible. However, from 2019 onwards, I expect a good growth in its earning.
So why not sell now and purchase only in 2018 or 2019? I guess I am afraid that management proves me wrong and do even better than my expectation and earning continues to grow from 2017 and I would not be able to participate in its growth for the next decade.
I will continue to hold on to my current stake but will not add on in the short term.
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