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Asia’s Healthcare Market Is Growing Rapidly: Here Are 3 Healthcare Stocks Near 52-Week Lows That Could Benefit From The Trend

Photo credit: Rafael Matsunaga. Licence: http://creativecommons.org/licenses/by/2.0/

According to market researcher Frost and Sullivan, North America is currently the largest healthcare market in the world while Europe is in second place. But, Asia (excluding Japan) is catching up quickly – the Asian healthcare market, which is growing at nearly 12% at the moment, is poised to become the second largest healthcare market in the world by 2025.

In my view, the reasons for the healthcare market’s growth is pretty much self-evident – people are having longer life spans, there’s an aging population, and disposable incomes are rising.

In Singapore’s stock market, there are a number of entities that are exposed to Asia’s healthcare market. Some of them include Raffles Medical Group Ltd (SGX: BSL), IHH Healthcare Bhd (SGX: Q0F), Singapore O&G Ltd (SGX: 41X), Health Management International Ltd (SGX: 588), and Parkway Life REIT (SGX: C2PU).

Let’s take a closer look at three healthcare stocks in Singapore’s market that are trading near their respective 52-week lows.

First up, Raffles Medical

This company should be relatively well-known to Singaporeans given that it runs its flagship Raffles Hospital located along North Bridge Road, and has a network of medical clinics and centres located across the island.

Raffles Medical’s business extends beyond Singapore’s shores though. It has clinics and centres in four other countries (China, Japan, Vietnam, and Cambodia) and is also developing a hospital in Shanghai, China, at the moment.

The company has delivered consistent revenue growth over the past few years. In 2016, Raffles Medical reported a revenue increase of 15.4%. Net profit for the year stayed flat however, due to higher staff costs (for business expansion and acquisitions) and higher operating leases, among others.

Looking ahead, Raffles Medical expects its business to continue growing in 2017. The company also expects to complete the expansion of Raffles Hospital later this year (the hospital’s area would increase by around 80% after the project is completed).

At its current stock price of S$1.41, Raffles Medical is merely 2.2% higher than its 52-week low, based on data from Yahoo Finance. It is currently valued at 35 times trailing earnings.

Next, IHH Healthcare

This company, which is listed in both Singapore and Malaysia, is the second largest listed healthcare operator in the world by market capitalisation. IHH Healthcare currently has a market cap of around RM 49 billion, which is over 6 times larger than Raffles Medical’s market cap, as an example.

As a quick introduction, IHH Healthcare is an international provider of healthcare services in markets where it thinks the demand for quality healthcare is growing rapidly. Right now, the company is active in Asia (this includes Singapore and Malaysia), Central & Eastern Europe, the Middle East, and North Africa.

Asia remains the company’s largest market. Some of the company’s brands include Gleneagles, Mount Elizabeth, Pantai, ParkwayHealth and Acibadem. For those living in Singapore, Gleneagles, Mount Elizabeth, and ParkwayHealth would be familiar brands.

2016 wasn’t the best of years for IHH Healthcare though. Despite enjoying a 19% increase in revenue, its profit actually declined by 34%. Even after stripping away one-off items, IHH Healthcare’s profit in 2016 would still be 4% lower than in 2015.

The company’s focus for 2017 would be to “continue to develop and enhance its service offerings in existing hospitals and ramp up hospitals opened in 2015 to achieve optimal operating leverage, while integrating its newly acquired assets.”

IHH Healthcare’s shares are exchanging hands at S$1.90 each right now, 1.6% higher than a 52-week low, according to Yahoo Finance. IHH Healthcare has a trailing price-to-earnings (PE) ratio of 79.

Last but not least, Parkway Life REIT

Parkway Life REIT is a slightly different investment vehicle to the prior two.

Firstly, Parkway Life REIT does not operate hospitals like IHH Healthcare and Raffles Medical do. It owns hospitals and leases space to medical professionals. Secondly, Parkway Life REIT is a real estate investment trust, which means it must pay out most of its earnings to shareholders on a yearly basis.

What’s interesting about the business of Parkway Life REIT is that it has the benefit of riding on the growth of the healthcare industry (through growing rent payments in its healthcare facilities), yet need not have to face the challenges of running hospitals and healthcare services.

On the point about the REIT’s rent payments, its hospitals in Singapore (Singapore is its largest geographical market, accounting for over half of the value of its portfolio) have a minimum upward rental revision of 1.0% per year. Moreover, Parkway Life REIT’s leases tend to run for easily more than a decade.

The few positive characteristics of the REIT listed above may be one of the reasons why IHH Healthcare has a 35.8% stake in it.

Parkway Life REIT achieved a 7.2% increase in revenue in 2016. Although its reported distribution per unit (DPU) declined by 8.8%, the REIT had enjoyed some one-off gains in 2015. If the exceptional items were adjusted for, Parkway Life REIT’s distributions in 2016 would have been 2.8% higher than in 2015.

Right now, the REIT is trading at 1.46 times book value at its unit price of S$2.45. That price is also just 5.6% higher than a 52-week low, based on data from Yahoo Finance.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Raffles Medical Group. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.