Singapore Healthcare - Maybank Kim Eng 2019-05-13: Time For A Health-Check

RAFFLES MEDICAL GROUP LTD (SGX:BSL) HEALTH MANAGEMENT INTL LTD (SGX:588)

Singapore Healthcare - Time For A Health-Check

We see encouraging signs that support domestic patient volumes for RAFFLES MEDICAL GROUP LTD (SGX:BSL) in Singapore and HEALTH MANAGEMENT INTERNATIONAL (SGX:588) in Malaysia. However, the rising quality and increasing cost competitiveness of healthcare in countries like Malaysia and Thailand vs. Singapore due to the stronger SGD will negatively affect Raffles Medical Group’s Raffles Hospital in Singapore but positively impact Health Management International’s Mahkota Medical Centre in Malaysia.
Both are expanding abroad, Health Management International in Singapore and Raffles Medical Group in China. While we are positive on the longer-term prospects for these growth projects, we are mindful of risks that could widen their gestation losses.

We initiate coverage of Health Management International at BUY given the 26% upside to our SGD0.68 Target Price (WACC: 7.1%, LTG: 1.5%), and we have not factored in the long-term growth prospects from StarMed. See report: Health Management International - Maybank Kim Eng 2019-05-13: Healthy Vital Signs.
We initiate on Raffles Medical Group at HOLD given the 2% upside to our DCF-based Target Price of SGD1.05 (WACC: 9%, LTG: 3%), despite factoring in its China hospitals. See report: Raffles Medical Group - Maybank Kim Eng 2019-05-13: Hurdles Before The Race.

Raffles Medical Group and Health Management International’s domestic patient volumes in Singapore and Malaysia respectively are supported by:
1. rising affluence and increased take up of insurance;
2. older age demographic shift and increased incidences of chronic diseases; and
3. overburdened public healthcare.
In Singapore, the population aged 65 and above is expected to account for 25% of the total by 2030 from an eighth in 2015. In Malaysia, this portion is expected to reach 11% in 2030 from 7% in 2018.

Aside from SGD strength, wages of doctors and nurses in Singapore are higher than in Malaysia and Thailand, which makes it difficult for domestic providers to compete with lower cost regional competitors on a price basis. Meanwhile, offerings from providers in these two countries are improving in terms of quality.
Raffles Medical Group’s revenue growth, which has lagged IHH HEALTHCARE BERHAD (SGX:Q0F)’s Singapore operations since 4Q16, may be an indicator that IHH Healthcare’s premium hospitals like Mount Elizabeth are more effective in attracting price-inelastic patients, while the budget conscious shift elsewhere regionally.
We believe Health Management International’s MMC remains well positioned to enjoy positive structural industry factors from medical tourism because it is a leader in medical tourism with a 10% market share in Malaysia and strong reputation in Indonesia. Foreign patients account for around 20% of the total at Health Management International.

Raffles Medical Group’s Chongqing hospital has begun operations, and its Shanghai one is expected to start in 2020. Long-term prospects are appealing in China amid higher incidences of chronic diseases from aging, stress and pollution. The Chinese are also increasingly affluent. Meanwhile, Health Management International’s StarMed appears well positioned to benefit from the rising demand for day-surgeries.
We expect Raffles Medical Group’s China hospitals and Health Management International’s StarMed to breakeven at the EBITDA/PATMI levels, respectively by year three of operations.
See attached 22-page PDF report for complete analysis on healthcare industry and also detailed comparison of Raffles Medical Group and Health Management International.

Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-05-13

SGX Stock Analyst Report HOLD INITIATE HOLD 1.05 SAME 1.130

BUY INITIATE BUY 0.68 SAME 0.800