SINGAPORE (June 11): CGS-CIMB Research says China could be the “cure” for anaemic local growth among Singapore-listed healthcare providers, with a total healthcare market size that is some 46 times larger.
“China is an attractive market for Singapore healthcare companies,” says analyst Ngoh Yi Sin in a sector note on Monday. “China’s healthcare expenditure is projected to grow from RMB 5.3 trillion ($1.0 trillion) in 2017 to RMB 8.0 trillion in 2020F, but supply – especially private healthcare – still lags demand.”
“We see improving dynamics for private healthcare (in China), supported by an ageing population, rising income and affordability funded by private medical insurance,” she adds. “Our channel checks and peer analysis show that healthcare can be profitable in China, notwithstanding near-term gestation costs.”
After a visit to Chongqing and Chengdu, Ngoh believes Raffles Medical Group (RMG) and IHH Healthcare will be able to leverage their new hospitals and network of clinics to benefit from China’s growing healthcare market.
RMG opened its first overseas 700-bed multi-disciplinary hospital in Chongqing at the start of 2019, while IHH will be opening a 350-bed comprehensive hospital in the medical city of Chengdu in 2H19.
Both companies are also slated to unveil their Shanghai hospitals in 2020.
CGS-CIMB is keeping its “hold” call on RMG, in view of near-term gestation costs and its current expensive valuation, and lowering its target price to $1.10 from $1.19 previously.
“[RMG] now trades at 31x FY20F P/E, less than 10% below its 5-year historical mean of 34x and above the regional industry average of 29x, which we deem expensive given its lacklustre earnings,” Ngoh says.
As at 2.45pm, shares in RMG are trading 1 cent up at $1.02.
Meanwhile, the brokerage has an “add” recommendation on IHH with a target price of RM 6.37.
“Despite the changes to IHH's board and management, we believe its vision of becoming a leading healthcare player in Asia is unchanged; near-term priorities for the new leadership are likely to remain,” Ngoh says, adding that IHH is one of her preferred picks in the sector.
As at 2.45pm, shares in IHH are trading 1 cent up at $1.85.
“Singapore’s healthcare sector is relatively under-owned and appears to be a safe haven for investors amid US-China trade crossfire,” Ngoh says.
“The sector seems resilient but is not cheap at 28.8x forward P/E (0.5 standard deviation above its long-term historical mean of 25.0x),” she adds.
The brokerage is maintaining its “neutral” call on the healthcare sector.
