Maybank Singapore analyst Eric Ong is keeping his “neutral” call on the Singapore healthcare sector, while looking out for signs of a “turnaround” in 2025.
The analyst highlights three Singapore healthcare listed stocks, Raffles Medical, Thomson Medical and Q&M Dental. He has a “hold” call for both Raffles Medical and Q&M Dental with a target price of $1 and 31 cents respectively, and a “buy” call for Thomson Medical with a target price of 6 cents.
In his Jan 17 note, Ong says that the sector has been in the “doldrums” for almost two years since profits peaked in FY2022 along with the gradual cessation of Covid-19 services.
Medical tourism has failed to “pick up the slack” amid keen regional competition, high costs and a strong Singapore dollar, the analyst notes. He says this has led to normalisation of revenues for private healthcare providers, exacerbated by margin compression attributed to negative operating leverage and inflationary pressures.
For Raffles Medical, Ong expects a 2HFY2024 earnings of $32 million, given slight seasonality, and improving operational efficiency for both its hospital and healthcare service division.
The analyst will be looking for signs of stabilization in loss ratios in its insurance segment after the adoption of new accounting standards which require upfront recognition of expenditure for each contract.
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“More importantly, we want to see whether China operations continue to grow patient volumes, leading to narrower gestation losses. We will also be alert to any updated management guidance for its initial target of its Shanghai and Chongqing hospitals achieving ebitda breakeven by end-2025,” Ong notes.
For Thomson Medical, Ong says that its bottom line is burdened by high finance costs and investment in digital initiatives, and specialist centre expansion strategy to lift patient offerings to fully utilise its assets. These services include in vitro fertilisation, orthopaedics, ophthalmology & screening services.
Thomson should record sequential growth in 2H on a better bed occupancy rate after the completion of renovations at Thomson Medical Centre, and higher inpatient volume/case intensity in Thomson Hospital Kota Damansara.
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He notes that the Johor-Singapore Special Economic Zone (JS-SEZ) may also benefit Thomson Medical with its Thomson Iskandar Medical Hub (a fully-fledged tertiary hospital with 500 beds and 400 medical suites) slated for completion in 2030.
Finally, on Q&M Dental, Ong expects the group to book about $3 - $4 million of non-cash impairment charges for its 51% owned Acumen in its 1HFY2024 results with the expiry of its clinical laboratory service license on Sept 15, 2024.
Excluding that, he projects Q&M’s core dental business to show decent organic growth, noting that its 49% associated company EM2AI recently received medical device licences from four Asean countries.
On the broader sector, Ong notes that while earnings have probably bottomed and valuations are looking more palatable, more visible growth catalysts are needed to drive stock re-rating.
