4 Stocks This Week (Healthcare) [22 May 2017]: Raffles Medical Group, Singapore O&G, Singapore Medical Group and First Reit
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From Noble’s share price taking another hit to reach a new low of 42 cents on Tuesday, to First Reit’s (now former) CEO Ronnie Tan retiring, the market has had it fair bit of news this week. However, what got the most people talking was former Neptune Orient Lines (NOL) chief Ng Yat Chung taking over as SPH CEO. NOL was a national shipping line which suffered years of losses and was eventually sold to French shipping company CMA CGM and became profitable after a year.
The changes in SPH’s top line management comes along with the current CEO Alan Chan and deputy CEO Patrick Daniel imminent retiring. Mr Ng is currently an independent director of SPH and is set to become the CEO on July 1st. How SPH continues to perform under Mr Ng’s leadership is what many will keep a close eye on.
This week we focus on healthcare – a traditionally resilient sector and also a sector forecasted to enjoy multi-year growth prospects.
The Healthcare Sector
The SGX’s Healthcare cluster has a combined market cap of $34 billion. The healthcare cluster comprises of subsectors that include healthcare providers (15 companies), medical equipment and supplies (7 companies), pharmaceutical and biotechnology (7 companies) and healthcare asset owners (3 trusts).
Healthcare is one of the most resilient sectors, especially in times where the economy is facing a downturn. During market correction (April 2015 to Jan 2016), the STI declined 24.6%. In comparison, the healthcare sector declined just 5.2% while REITs declined 14.3%. The optimism surrounding healthcare stocks has driven up share prices.
Demand for healthcare has been bolstered by an ageing population in Asia, increasing affluence as well as the rise of medical tourism. People are heading to countries with advanced medical technology and equipment such as Singapore to treat their illnesses. Singapore’s healthcare providers have outperformed their Asia-Pacific peers with a median total return of 26.2% over the past 12 months.
Based on insights provided by SGX Research and Products Team, we look at 4 healthcare sector stocks, namely: Raffles Medical Group, Singapore O&G, Singapore Medical Group and First Reit.
Raffles Medical Group (SGX: BSL)
Raffles Medical Group is one of the most successful healthcare providers that is listed on the Singapore stock exchange with a market cap of $2.426 billion. Besides Raffles Hospital and Raffles Medical clinics located around the country, the group is looking to expand into overseas market due to Singapore’s small market size and the increasing local competition.
Raffles Medical Group has highlighted its focus on China for expansion and growth. With Singapore’s domestic market maturing, more healthcare providers are expanding overseas to leverage on size and growth prospects.
Raffles Shanghai Hospital is poised to open in early 2019. Besides Shanghai, they are also continuing to seek opportunities in Tier 1 cities such as Beijing. Turning to China for potential growth has become more apparent in the industry, with Q&M dental group also following suit with advancements into mainland China with the aim of becoming the largest player in various Chinese cities.
Singapore O&G (SGX: 1D8)
Singapore O&G operates specialist clinics in Singapore specializing in women’s healthcare and treatment. Currently, Singapore O&G have 6 specialists operating in 11 clinics in 7 locations across Singapore. The company is also looking into new business segments such as paediatrics and IVF.
Earnings for Q1 (ended 31 March 2017) were reported on 12th May. Singapore O&G showed an increase in revenue by 6.1% YoY to S$7 million, while net profit gained 2.8% to S$2million.
In their 2016 Annual Report, what caught the attention of many investors was the company’s target to pay out 90% of its net profit after tax. This is an extremely high percentage, considering that this is not a REIT. While it might seem like a good deal for investors, one of the main concerns have been their plans for growth if the earnings are mostly paid out and not being re-invested.
Singapore Medical Group (SGX: 5OT)
SingMedical has the smallest market cap of the 4 stocks this week with $251 million. When we look at the P/E ratio, SingMedical’s P/E is 71.6, more than twice the P/E of Raffles Medical Group.
Over the last 12 months, Singapore Medical Group has seen a 265.5% boost in price performance. This is partly due to their agreements with regards to acquiring two pediatric clinics. These acquisitions make SingMedical one of the largest specialist practitioners dedicated towards the health of women and now children.
SingMedical shows the apparent consolidation within the healthcare industry in recent times. Many companies acquire local clinics to boost their size. This ultimately helps the company to increase their economies of scale.
SingMedical is also targeting to grow in 7 key specialties both organic and inorganically. This specialties are: oncology, ophthalmology, OBGYN, aesthetics, sports medicine, dental and health screening.
First Reit is one of the three listed healthcare trusts in Singapore, with the other two being Parkway Life Reit and Religare Health Trust (RHT).
Majority of First Reit’s assets are located in Indonesia (14 in Indonesia, 3 in Singapore and 1 in South Korea), with most of them being hospitals. This makes investing into First Reit a unique opportunity as it offers an investment opportunity that is focused outside of Singapore.
First Reit delivered a new high in their annual DPU of 2.13 cents, mostly achieved through their efforts in yield-accretive acquisitions. When we look at the lease expiry profile, the Weighted Average Lease Expiry (WALE) is 10.0 years and the nearest date of rental renewals is 2021.
This week, First Reit’s share price saw a slight drop . This came after the announcement of the retirement of Ronnie Tan, (now former) CEO and executive director of the board who was with the company since 2006. In his place, First Reit has appointed Victor Tan as its acting CEO.
4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.