Econ Healthcare - DBS Research 2021-09-13: A Golden Silver Economy Play; Initiate Coverage WIth BUY

ECON HEALTHCARE (ASIA) LIMITED (SGX:EHG)

Econ Healthcare - A Golden Silver Economy Play

Econ Healthcare - leading premium private nursing home operator in Singapore and Malaysia, with presence in China.
Beneficiary of aging population trends in Singapore, Malaysia, and China, >10% CAGR from 2020 to 2024F.
Expect ~ 12% net profit CAGR from FY21-FY24F, led by a ~ 40% increase in bed capacity from 1,376 beds to 1,936 beds by FY24F.
Initiate coverage on Econ Healthcare with BUY with target price of S$0.40 based on DCF, implying potential upside of 33%.

Econ Healthcare (Asia) Limited (SGX:EHG) was founded in 1987 by Mr. Ong Chu Poh with one 17-bed nursing home. Econ Healthcare has since grown into a leading private nursing home operator with 11 medicare centres and nursing homes in Singapore and Malaysia, with a total bed capacity of 1,376 beds as of 31 March 2021. By revenue, Econ Healthcare has a market share of 26.9% and 43.2% in Singapore and Malaysia, respectively, in 2019, according to Euromonitor.

Euromonitor estimates that the revenue receipts of the private nursing home market in Singapore, Malaysia and China will grow at a 4-year CAGR (from 2020 to 2024F) of 13.6%, 11.5% and 16.6%, up from S$121 million, MYR48.6 million and RMB35.1 billion respectively. These trends are contributed by factors such as:
1. An expanding elderly population amidst declining old age support ratios
2. Rising income and rise in dual-income families
3. Increasing standard of care to focus on the quality of life and emotional well-being of the elderly
4. Increasing government support for the industry

In Singapore, the number of available private beds per 1,000 citizens aged 65 and above (“elderly”) has declined from 8.5 in 2015 to 6.6 in 2019 and is projected to decline further to 5.2 by 2024. According to Euromonitor, this decrease is attributed by an increasing aging population and low supply of private nursing home beds and may translate into unmet demand for private nursing home beds.
On the other hand, notwithstanding the addition of new beds by 2024 and an increasing elderly population, Malaysia is forecast to have a modest 0.42 available beds per 1,000 elderly in 2024F, up only slightly from 0.41 in 2019.

Econ Healthcare was appointed as an operator under the Build Own Lease (BOL) Scheme for two new centres, namely ECON Medicare Centre and Nursing Home – Henderson (“BOL Henderson”; 236 beds) and ECON Medicare Centre, and Nursing Home – Jurong (“BOL Jurong”; 732 beds), which are expected to be operational in the second half of 2022 and in 2025 (FY26F) respectively.
We expect the ramp-up in capacity to be supported by strong occupancy rates, as exhibited by Econ Healthcare’s Singapore operations achieving a historical high occupancy rate of 95% for FY21 despite the COVID-19 pandemic. The ramp-up in bed capacity and resilient occupancy rates will see Singapore remaining as Econ Healthcare’s core market.

In Malaysia, growth will be mainly driven by the new nursing home in Puchong (“Puchong Centre”; 138 beds) which recently commenced operations in December 2020. In the longer term, Econ Healthcare has a freehold site (land area of 8,792 sqm) in Cheras, Kuala Lumpur located next to a mass rapid transit station that is currently leased out to an education centre. Subject to regulatory approval, the site could potentially be developed into a senior care hub.
In China, Econ Healthcare’s majority-owned Joint Venture (“JV”) in Chongqing, China (“Chongqing Centre”; 44 beds) had recently commenced operations in the first half of 2021.
We also expect additional growth opportunities to come from the two additional nursing facilities in Changshou, a majority-owned JV (“Changshou Centre”; 280 beds) and Chengdu, a minority-owned JV (“Chengdu Centre”; 400 beds), both are expected to commence operations by FY23F.

We project Econ Healthcare to achieve a net profit CAGR of 12% over FY21-FY24F and 15% over FY21-FY26F as contributions from the BOL centres in Henderson and Jurong kick in from FY23F and 2025 (FY26F) respectively.

Econ Healthcare is currently trading at undemanding valuation at 22.0x FY22F price-to-earnings (P/E) ratio, below peers’ median P/E of 23.9x. Our target price of S$0.40 for Econ Healthcare is based on Discounted Cash Flow (“DCF”) valuation with a Weighted Average Cost of Capital (“WACC”) of 8.7% and terminal growth rate of 1%. We have also cross-checked our valuation using relative P/E valuation.
Key risks encompassing regulatory, operational as well as macro factors include:
- Ramp-up risk,
- Ownership risk in Malaysia,
- Key man risk,
- Competition,
- Changes in level of subsidies in Singapore,
- Renewal of government contracts/sites in Singapore,
- Ability to retain staff,
- Outbreak of diseases leading to lower number of residents.
See
See the 29-page report attached below for complete analysis on Econ Healthcare (SGX:EHG).

Paul YONG CFA DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2021-09-13

SGX Stock Analyst Report BUY INITIATE BUY 0.40 SAME 0.40