Singapore

Healthcare sector looking healthy

Over the past year, Singapore's healthcare providers have outperformed Asia-Pacific peers

Your friendly neighbourhood doctor could soon become part of a medical chain.

Over the past 12 months, publicly traded companies here have completed at least 19 transactions - nearly double the figure in 2015 - involving the acquisitions of clinics, according to data compiled by Bloomberg.

These include home-grown medical chains Singapore Medical Group and HC Surgical Specialists, which have expanded by acquiring individual clinics. 

Investors should take note, as analysts think this trend of "consolidation" will continue, causing stocks to rally, said the Singapore Exchange (SGX) at a media briefing of the healthcare sector on Tuesday.

There are 34 healthcare companies listed on the SGX, spanning hospital owners, speciality clinic groups, pharmaceuticals, healthcare equipment and supplies, as well as healthcare real estate investment trusts.

This sector, with a combined market cap of $34 billion, has been fast-growing compared to the region, with a 10-fold increase in its total market cap over the last 10 years.

In comparison, Asia-Pacific's healthcare sector has grown four times over the same period, SGX figures showed.

Over the past year, Singapore's healthcare providers have outperformed their Asia-Pacific peers with a median total return of 26.2 per cent.

In contrast, countries like Hong Kong, Korea and Australia saw negative returns of 5.1 per cent, 9.8 per cent and 3.5 per cent respectively. In the long run, returns have been competitive - SGX healthcare sector leaders have generated an average of 20 per cent five-year annualised total returns.

The sector's healthy performance on the stock market is due to the growing market for healthcare in Asia, said SGX.

On the demand side, the demographics in Asia are favourable - rising affluence with a growing middle class and an ageing population, with the number of over-65s set to quadruple by 2050. Lifestyle ailments such as diabetes, heart disease and obesity will also boost the demand for services.

TNP GRAPHICS

On the supply side, there are opportunities for the lucrative private healthcare sector. The share of government healthcare spending in Asia is one-third less than the Organisation for Economic Co-operation and Development (OECD) average.

Access to quality healthcare is also an issue in Asia - there are 1.2 doctors for 1,000 people in Asia, compared to the OECD's average of 3.2 doctors.

The 10 largest SGX healthcare stocks provide significant regional exposure.

In the last financial year, an average of 27 per cent of their revenue was attributed to Singapore, while 54 per cent was to countries such as Malaysia, China and India.

Tapping into the overseas market is crucial because Singapore's position as a medical tourism hub is "not going to be preserved forever" as the healthcare infrastructure of neighbouring countries improve, said SGX.

A BMI Research report noted that hospitals in Thailand and Malaysia have been trying to woo patients from Singapore's expensive hospitals, where the cost will be "a financial deterrent for foreign patients".

HIGHER COSTS

For instance, a heart bypass in Singapore costs 41 per cent more than in Thailand and 106 per cent more than in Malaysia.

Figures from the Singapore Tourism Board showed that medical tourism receipts stood at $1.1 billion in 2012, dropped to $832 million the following year, before going up slightly to $994 million in 2014. It stopped providing the figures in 2015.

To deal with this, Singapore's healthcare providers have expanded overseas, ventured into new segments or focused on building a chain of medical practices to leverage on size and growth, said SGX.

Raffles Medical Group, the largest healthcare stock on SGX, will open Raffles Shanghai Hospital early next year and continue to seek opportunities in Tier 1 cities, including Beijing.

Well-known local dental chain Q&M Dental Group also aims to be the largest player in northern Chinese cities such as Shenyang and Panjin.

Last month, its spin-off, Aoxin Q&M Dental Group was listed on the Catalist Board.

OCBC Bank analyst Jodie Foo said in a report last month that China remains an attractive choice for growth for Singapore's healthcare sector.

She said tapping on new markets is important for private healthcare companies to sustain growth in the long run.

But Ms Foo added: "However, time will tell whether such expansion plans could be successful, hence we are neutral on the sector as we are cognizant of risks relating to execution and expenses taking a prolonged toll on profitability."

SGX noted these healthcare providers have another strategy - focusing on speciality treatments.

"Our healthcare providers are starting to move up the value chain, preparing for the time when the cost issue becomes a bigger bugbear for our foreign medical tourist. They are tapping into niche treatments which are more price inelastic."

Home-grown medical providers

SINGAPORE O&G

The women's health and wellness company, which offers services such as obstetrics, gynaecology and dermatology, was listed on the Catalist in 2015. It will branch into paediatric services in July.

It has six O&G specialists, three women cancer specialists and one skin specialist, operating 11 clinics in seven locations.

Singapore O&G has a current market capitalisation of more than $337 million. In the year-to-date, the stock has risen 20.9 per cent.

SINGAPORE MEDICAL GROUP

The specialist healthcare provider with 29 clinics in Singapore became publicly listed in 2009. It plans to grow into seven key specialities, including oncology, ophthalmology (eye), obstetrics and gynaecology, sports medicine, dental and health screening.

Last month, it announced its foray into paediatrics, acquiring the Children's Clinic in Toa Payoh and the Kids Clinic in Bishan for $25.3 million.

Singapore Medical Group has a current market capitalisation of more than $251 million. In the year-to-date, the stock has risen 34.5 per cent.

HC SURGICAL SPECIALISTS

The company, which listed on the Catalist last year, runs a chain of clinics offering endoscopic procedures such as gastroscopies, colonoscopies and colorectal surgery in the heartlands, with clinics in Bukit Batok, Hougang, Tampines and Farrer Park.

Founded by successful colorectal surgeon Heah Sieu Min, it plans to expand its local presence, and completed its acquisition of Julian Ong Endoscopy & Surgery for $2.2 million in February.

HC Surgical has a current market capitalisation of more than $85 million. In the year-to-date, the stock has declined 1.2 per cent. - LINETTE HENG

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