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MBKE: APAC Healthcare Growth At Over 12%
Aspire, Hot Picks | 29 April 2015
By: Lim Si Jie
Articles (169) Profile

While global healthcare markets are forecast to grow at a less than 6 percent Compound Annual Growth Rate (CAGR) from 2012 to 2018, the Asia-Pacific (APAC) healthcare market is projected to expand at double that rate – 12.8 percent.

In its latest research coverage, MBKE picked three healthcare stocks with exposure in the Asian market that is ready to capture the burgeoning demand for healthcare services.

Healthcare Stock 1: Cordlife – Ready To Capture Growth In Asia

Cordlife has increased its cord blood storage market share and penetration rate throughout Asia, especially in India – one of its fastest-growing markets. Revenue is expected to improve, considering the increase in signups in 1H15.

1H15 earnings were dragged down by selling and marketing expenses in India of $2.5 million. Management has pared down such spending and expects to conclude its one-off campaign in 4Q15. As such, Cordlife is expected to make profits from then on.

Cordlife’s Investment In China Market

Apart from coupon payments, potential share price appreciation and any dividend income, its strategic stake should allow Cordlife to harness China Cord Blood Corporation’s (CCBC) platform for marketing its products.

Cordlife already formed an alliance with CCBC in March 2014 to offer its cord tissue storage in China, becoming CCBC’s second largest shareholder. Its share price has recovered since the announcement and CCBC’s Chairman commented that this could be an indication of the market regaining confidence in Cordlife.

Verdict: BUY, TP SGD1.35

Healthcare Stock 2: Raffles Medical – Progress In Local Expansion

Raffles’ Holland Village Medical Centre and flagship hospital extension are scheduled to complete in 1Q FY16/17. The site at Holland V has attracted keen tenant interest and it is evaluating options to extract maximum rentals from its unused space.

Raffles Hospital’s extension will add 72 percent of gross floor area. Raffles Medical can then shift its specialist centre there to free up space for 100 more beds. MBKE believes that “this will provide them with the infrastructure to grow over the next five to ten years.”

Raffles’ Differentiated Service From Competitors

Raffles Medical’s hiring practice of employing doctors not only allows them to provide consistent service and savings for patients, but the management believes this also differentiates them from the other new private hospitals such as Farrer Park Hospital. Moreover, there is no direct competition with public hospitals where subsidised beds are filled up very quickly.

Risk Of Dwindling Medical Tourists

Around 70 percent of the hospital’s revenue comes from local admissions. Its diversified foreign patient pool should also mitigate any drop in medical tourists. However, investors should be cautioned about the hospital’s reliance on the local market. Singapore’s strong currency against foreign currencies might deter foreign patients from seeking treatment in Singapore.

Verdict: HOLD, TP SGD3.91

Healthcare Stock 3: Q&M Dental – Focusing On China Market

MBKE is expected Q&M Dental to engage in more M&As after it reported $60 million debt last month. MBKE highlighted that management is exploring the option of expanding “more dental hospitals” to “accept national health insurance or yibao patients.” This would give Q&M access to a mass market that is seeking basic dental services.

With growing affluence, Q&M hopes to not only provide basic dental services but also provide higher-value services such as teeth whitening, orthodontics, crowning, implants etc, eventually. Q&M recently converted two of its office floors in Aoxin’s dental hospital into a paediatric dental centre. According to MBKE, this is “expected to do well in view of China’s one-child policy.”

Local Market Still Contributing To Q&M’s Growth

Q&M’s Singapore segment is benefiting from the Community Healthcare Assist Scheme launched in 2012 and Pioneer Generation Package started in Sep 2014. The latter can be used to subsidise dental treatment for Singapore’s pioneer generation in private dental clinics. As such, the subsidies might attract more locals to seek dental treatment from Q&M Dental.

BUY, TP SGD0.71

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.


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