In 2017, healthcare sector in Singapore underperformed the Straits Times Index (STI) with the former gaining 14.8 percent while the latter gained 18.1 percent. Several headwinds faced by the sector were the main attributes for the underperformance but is looking to stabilise in 2018.
There is a trend of tighter regulations such as banning of third-party administrators (TPA), prohibition of profit guarantees for M&A deals, growing emphasis on primary care, and the introduction of fees benchmark. Tighter regulations for the healthcare segment is expected to intensify the competition and may lead to consolidation.
Competition In Medical Tourism
The strengthening Singapore dollar coupled with the possibility of increment of GST, medical tourism in Singapore is becoming less affordable and is losing its appeal to foreign patients. This comes as Singapore’s neighbours such as Malaysia and Thailand are gaining prominence as destinations for medical tourism.
Expanding Their Footprints
Healthcare groups in Singapore have been able to bank on Singapore’s strong reputation for high standard of healthcare system through their overseas expansion. In the wake of the slowing growth in medical tourism in 2014, healthcare groups in Singapore began their overseas expansion.
Various healthcare groups have rolled out their operations and are expanding in countries such as China and Malaysia.
Health Management International
Listed on SGX, Health Management International’s (HMI) main base of operations are in Malaysia. Compared to its peers listed on the exchange, HMI is the beneficiary of Malaysia’s growing medical tourism. Under their belt, they own two hospitals in Malacca and Johor with a combined bed capacity of 506. Being one of the top five private hospital operators in Malaysia, they hold an approximate 10 percent share of the country’s medical tourism sector.
Space will not be a constraint of growth for HMI as expansion have been planned by its management. Its Malacca hospital will add over 30 beds in FY2018 through the reallocation of space. In addition, the hospital has available land bank which could be developed into its extension. This will likely be similar to the current development that is underway at its Johor hospital that is projected to complete in FY2021.
Notably, Temasek’s Heliconia Capital became a shareholder of HMI through new share placement. This is a show of support by a reputable institutional investor in HMI. Analysts from CIMB Research reiterated their “Buy” call for HMI with a target price of $0.83. (current share price:$0.675)
Raffles Medical Group
One of the strongest medical group that is listed in Singapore, Raffles Medical Group’s (RFMD) main segments are healthcare and hospital services. The group is well positioned to reap on Singapore’s aging population, increasing focus on primary care as well as higher insurance penetration rate. For near term profit support, RFMD has a contract with the Ministry of Health for Emergency Care Collaboration and its insurance arm has a broad corporate client base of 6,800.
The soften medical tourism demand in Singapore has hit RFMD as its hospital revenue growth has slowed to single digits. However, the prospect from local patients will provide a long term sustainable earning base. To counter the limitations of growth in Singapore, RFMD have been tapping into emerging markets such as China to capture the underserved and rising middle class in the country.
In total, RFMD had two hospitals underway in China. All eyes are now on its Chongqing, China hospital which will open in the 2H2018 and has a capacity of 700 bed. This will also provide some guidance to the performance of the Shanghai hospital that will open in 2H2019.
Analysts from CIMB Research reiterated their “Buy” call for RFMD with a target price of $1.24. (current share price: $1.10)
IHH Healthcare is a Malaysia listed medical group that operates mainly in Singapore and Malaysia. They count Malaysia’s state investment fund, Khazanah Nasional as their largest shareholder. Famously, they are the owner of Gleneagles hospital in Singapore.
In 2017, performance for IHH was weak in both profit and share price. They were mainly attributed to the opening of two large flagship hospitals that weighted down its profitability. However, financial performance is expected to turnaround by FY2019 as the new hospitals breakeven.
Along with RFMD, IHH is targeting the emerging middle class in China and to address their needs for private healthcare. They remain on track to enter the Chinese market with three hospitals in Chengdu, Nanjing and Shanghai planned to open from late 2018 to 2020. Additionally, they have a small operation in India which could be grown through acquisitions.
Analysts from CIMB Research reiterated their “Buy” call for IHH Healthcare and gave them a target price of RM7.06. (current share price: RM5.99)