Within the basket of healthcare stocks listed in Singapore, the ones followed most closely by investors are the large caps that own and operate large hospitals across various markets.
One of the top healthcare stocks to watch is Raffles Medical Group (RMG) BSL , which operates one of Singapore’s largest private healthcare networks, offering a wide range of services, including specialist consultations, diagnostic imaging and laboratory services. RMG also operates a network of medical clinics, including 68 clinics in Singapore; and hospitals in the city-state and China. The company has grown rapidly in recent years, with revenue increasing from $431 million in FY2016 to $766.5 million in FY2022. RMG’s financial year ends in December.
For its latest FY2022, RMG continued its growth trajectory despite Covid-19 being a thing of the past. Earnings were 70.5% higher y-o-y at $143.7 million, from $83.7 million a year ago. Dr Loo Choon Yong, executive chairman of RMG, says a large proportion of the growth in FY2022 was thanks to the return of foreign patients visiting RMG’s hospitals.
Loo knows that healthcare in Singapore is perhaps the most expensive within the region, but the quality of care in Singapore is much higher, so “the premium is justifiable”. “Those who come to Singapore to seek healthcare services are usually less price-sensitive. They are looking for a higher level of care and service, which we can compete with. We cannot compete on being cheaper [than the other regional countries]. It’s impossible,” says Loo, who co-founded the company four decades ago.
He adds that the city-state will be where people seek care for cancer or heart and brain surgeries. It will also be the hub for those accessing niche services like in-vitro fertilisation (IVF).
Although several Covid-19 activities relating to vaccination tapered off in 2HFY2022 and some community treatment facilities continued to evolve into step-down care facilities, RMG is still upbeat on its outlook as its hospitals in China are expected to give the group a boost moving forward. Loo adds that its Chongqing hospital is back to pre-Covid levels, while its new facilities in Beijing and Shanghai, which opened in 2021, are ramping up operations.
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Analysts are generally pleased with RMG’s latest results. Eric Ong of Maybank Securities has reiterated his “buy” call with a $1.65 target price, as he is upbeat on the group’s 50% y-o-y ebitda growth to $129.1 million. The significant margin expansion comes from positive operating leverage. While he thinks that the company’s FY2023–FY2025 margins may come off from elevated levels, it should be partly supported by continued growth in foreign parents as well as pent-up demand from higher-margin electives. Ong sees a key catalyst for the stock to be faster-than-expected break-even of its China operations.
However, Rachel Tan of DBS Group Research is more bearish, as she downgraded the stock to “hold” with a lower target price of $1.48. She expects earnings growth to moderate in FY2023, given the exceptionally high base from the Covid-19 pandemic.
Since its FY2022 earnings were announced, RMG’s shares have declined from a high of $1.50 on Feb 27, the day of the results announcement, to close at $1.37 on March 7, giving it a market capitalisation of about $2.6 billion.
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On the other hand, Malaysia-based IHH Healthcare operates in Malaysia, Singapore, Turkey and India. For its FY2022 ended Dec 31, 2022, revenue grew by 5% y-o-y to RM18 billion ($5.4 billion), as its core non-Covid-19 revenues recovered when local and foreign patients returned for treatment at the group’s hospitals. However, because of costs and unfavourable forex, earnings in the same period were down by 16.9% y-o-y to RM1.55 billion.
Looking ahead, IHH expects its inpatient revenue to grow post Covid-19. It also remains confident of its long-term growth trajectory, underpinned by megatrends in healthcare and its strong financial position. It looks forward to shaping its diagnostic capabilities into a more distinct core platform apart from the core hospital operations.
Despite the lacklustre results, analysts remain upbeat and keep their “buy” recommendations. UOB Kay Hian’s Philip Wong lowered his target price to RM6.80 from RM7.10, as earnings were below expectations due to softer-than-expected inpatient admission growth and lower contribution from Acibadem, IHH’s Turkish subsidiary.
Nonetheless, he sees encouraging signs in IHH’s Singapore operations and believes that the return of medical travel and domestic electives should fuel FY2023 growth. “IHH’s attractive valuations and decent earnings growth outweigh the hyper-inflationary risks associated with Acibadem,” says Wong.
CGS-CIMB Research’s Tay Wee Kuang, who has kept his price target at RM7.33, sees multiple revenue growth pathways across different markets. He believes that IHH’s growth strategy remains grounded and sound, although its success will lie in the execution across its diversified portfolio.
“We believe that IHH’s growth story is intact, but our estimates reflect a more conservative outlook compared to the management regarding revenue growth, as we think that optimisation of new bed capacities could take longer than expected. We also believe cost pressures will continue to weigh on margins,” says Tay.
IHH also sponsors one of Asia’s largest listed healthcare REITs, Parkway Life REIT (PLife REIT), which owns a portfolio of private hospitals in Singapore and nursing homes in Japan.
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DBS Group Research analysts Rachel Tan and Derek Tan favour the trust for its strong earnings visibility, amid the current backdrop of a volatile and uncertain market outlook. They have a “buy” call on the counter and a target price of $4.80.
The DBS analysts view PLife REIT as a “rare jewel” among the Singapore REITs, as it offers highly visible, stable and sustainable earnings through its resilient industry and long leases with downside risk protection. The analysts also believe PLife REIT’s asset recycling exercise will continue to drive growth ahead, given its successful track record.
UOB Kay Hian analyst Jonathan Koh is also bullish about PLife REIT. With a “buy” call and $4.49 target price, Koh says that the REIT appeals to risk-averse investors who value its defensive strength due to its healthcare orientation and long weighted average lease expiry of 17 years.
Another large hospital operator is Thomson Medical Group (TMG). It is also one of Singapore’s large private healthcare operators, with a large presence in Malaysia through its Malaysian-listed subsidiary, TMC Life Sciences.
Emerging from the pandemic, TMG has seen improvements in its latest 1HFY2023, ended Dec 31, 2022, with earnings coming in 82.6% higher y-o-y at $22.8 million and revenue increasing by 26.6% y-o-y to $184 million. While the group’s operations have been concentrated in Malaysia and Singapore, TMG’s vice-chairman and executive director, Kiat Lim, intends for the group to scale up within the region.
Dr Melvin Heng, TMG’s executive director and group CEO, says that with the easing of travel and community restrictions towards the end of last year, “we have seen a surge in demand for healthcare services due to an increased emphasis on personal health. Also, elective procedures deferred during the pandemic are now being performed.” He expects this trend to continue this year.
