SINGAPORE (Dec 20): Singapore’s healthcare sector is expected to face strong pricing competition from neighbouring countries, such as Malaysia and Thailand where patients are able to also receive quality medical treatment at a faction of the cost as compared to Singapore due to the much lower treatment, drug and room costs.
Furthermore, the SGD’s strength compared to the other key regional countries adds to the pressure on costs, weakening Singapore’s appeal to medical tourists.
Hence, RHB is maintaining its “neutral” recommendation on Singapore’s healthcare sector.
The research house’s top healthcare “buy” pick is Singapore Medical Group (SMG) with a target price of 79 cents, as the group’s turnaround is now further validated by both organic and inorganic growth.
In a Tuesday report, analyst Jarick Seet says, “We also expect it to also make more accretive but smaller sized acquisitions in the near term, thereby hastening its growth.”
The group will also be hiring more doctors and optimising its processes as it goes along to improve its utilisation.
“We expect a stronger FY18, mainly due to the full earnings accretion from its acquisitions in 2017 and the cross-selling synergies it is able to generate by providing a wider array of specialist treatments,” adds Seet.
Meanwhile, Singapore’s Ministry of Health (MoH) will be introducing in 2018 a government-backed fee for different medical procedures. Consumers can use this as a reference to see if they are being charged reasonably, while acting as a guidance for private practitioners.
Furthermore, this move will encourage doctors to peg their fees as patients can question if they are charged higher than the benchmark. This would provide a natural resistance to an increase in medical treatment charges.
The ageing population (aged 65 and above) in Singapore has increased to 13% in 2016 from 9% in 2010, while life expectancy has also increased to 83.1 from 81.5 in 2010.
“An aging population in Singapore as well as an increase in healthcare expenditure would continue to be positive for the healthcare scene in Singapore,” says Seet.
The long waiting time in general hospitals for public healthcare services will also continue to entice more people to make use of integrated shield plans to gain access to faster services from private hospitals.
In addition, the increase in GDP per capita would also lead to an increasing demand of higher medical standards and requirements.
“With the headwinds ahead, we see challenges and a limited upside ahead in the Singapore healthcare scene. Results across Singapore-listed healthcare providers have also not been up to expectations in 2017,” says Seet.
As at 4.30pm, shares in SMG are trading at 57 cents or 4.0 times FY18 book.
