SINGAPORE (June 19): UOB Kay Hian is remaining “market weight” on Singapore’s healthcare sector on expectations of decelerating medical tourism growth in Singapore, due to rising competition from neighbouring Asean countries such as Malaysia.
“Going forward, we expect patient growth [in Singapore] to stem largely from local patients, underpinned by favourable demographic trends such as ageing demographics as well as rising income levels,” says lead analyst Thai Wei Ying in a Monday report.
While Thai expects patient volume growth to be supported organically, he believes the number of lower-margin local patient growth may outpace that of higher-margin international patients, which will lead to softer revenue intensity growth in Singapore.
“Using IHH’s Singapore operations as a benchmark, we note that despite relatively strong growth in patient load, quarterly revenue intensity growth has been on a decline since 2013. While quarterly growth used to track an average of 5% y-o-y between 2013-14, it has declined to the level of 1-2% yoy between 2015-16, which we estimate to be the normalised level going forward,” explains Thai.
Noting how the city-state’s private hospital operators have been embarking on aggressive overseas expansion initiatives, Thai also anticipates expansion costs to hamper earnings of Singapore hospitals in the near term.
As such, Raffles Medical Group (RMG) and IHH Healthcare have been rated “hold” at target prices of $1.52 and $1.80 respectively.
Instead, he now prefers companies that offer new-term earnings growth outlook such as Health Management International (HMI), which has been named UOB’s top “buy” at a target price of 83 cents.
According to Thai, the Malaysia-based hospital operator is gaining grounds in term of quality and service offerings but at a fraction of the bill sizes in Singapore.
“For instance, HMI has been stepping up efforts to develop Centres of Excellence by hiring more sub-specialties as well as expanding the comprehensiveness of services. Furthermore, increased accreditation of healthcare facilities by internationally-recognised programme MSQH has also helped to raise confidence in hospital standards. HMI’s Mahkota has been MSQH-accredited since 2014, with Regency in the process of getting accredited,” says Thai.
Singapore O&G (SOG) has also been rated “buy” by UOB with a target price of 74 cents, and highlighted as a compelling midcap healthcare stock with an attractive dividend yield of 3-4% and strong earnings per share (EPS) growth.
“We are upbeat on the [SOG’s] growth prospects, driven by its focus on high-revenue intensity cases and positive medical tourism outlook in Malaysia,” adds Thai.
As at 4.50pm, HMI and SOG are trading higher at the respective share prices of 70 cents and 66 cents. RMG is trading flat at $1.36, while IHH is up by 1 cent at $1.96.
