Healthcare - RHB Invest 2017-01-03: Buy For Your Elderly Care

Singapore Healthcare Sector 2017 Outlook SINGAPORE MEDICAL GROUP LTD 5OT.SI RAFFLES MEDICAL GROUP LTD BSL.SI

Healthcare - Buy For Your Elderly Care

We have an OVERWEIGHT call on the healthcare sector. We believe that an ageing population and increased sophistication in medical insurance plans are the key growth drivers in Singapore’s private healthcare industry.
Moreover, despite stagnating medical tourism, we believe the shortage of public healthcare services domestically means that private healthcare players still stand to benefit from the spillover in local demand.

We have Raffles Medical Group (RMG) and Singapore Medical Group (SMG) as our Top Picks.

In Singapore, the percentage of the population aged 65 and above has increased to 13% in 2016 from 9% in 2010. Life expectancy has also risen to 83.1 in 2016, from 81.5 in 2010. Similarly, in 2010-2014, the Singapore Cancer Registry reported that there had been a 17.4% surge in incident cancer cases on an annual basis to 13,416 from 11,431.
We believe domestic healthcare expenditure in Singapore ought to continue to grow on the back of this ageing population trend. We also see elective and discretionary care as potential growth opportunities in the healthcare space.

Singapore residents have become cognisant with private integrated shield plans. The number of policyholders has risen by a CAGR of 6% over 2006-2015. Currently, half of the country’s residents have integrated shield plans, which allow them access to private medical services when needed.
With the increased sophistication of insurance plans (eg shield plans with add-on riders), we believe private healthcare services are likely to be key beneficiaries.

While the bed crunch situation in 2013-2014 has been alleviated with the opening of new general and community hospitals, the long average waiting time in the former demonstrates the severe manpower shortage in the public healthcare space. Over the years, rising GDP/capita has also led to higher standards of medical services requirements.
We believe the long wait times with the public healthcare services would eventually entice more residents to make use of integrated shield plans to access private medical alternatives.

We maintain our OVERWEIGHT call on the sector as we believe that healthcare spending would continue to be resilient in 2017.
On top of that, both the companies under our healthcare coverage – Raffles Medical Group (RMG) and Singapore Medical Group (SMG) – have strong growth pipelines for lined up for 2017.
The majority of the tenants at the Raffles Holland Village Medical Centre would have moved in by early 2017, and we believe this rental yield ought to contribute positively to RMG’s bottomline. Additionally, its Raffles Hospital extension – set to complete by 2H17 – should also drive up patient load by end-2017.
SMG, on the other hand, expects to see exciting growth. This is as it continues its acquisition spree to consolidate the specialist medical private fields in Singapore.

Juliana Cai CFA RHB Invest | Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-03 RHB Invest

BUY Maintain BUY 0.630 Same 0.630

BUY Maintain BUY 1.760 Same 1.760