THE Singapore health minister unveiled a healthcare roadmap in Parliament yesterday, focusing on three goals: 1) Singaporeans to receive health care when needed; 2) healthcare services will be of good quality and effective; and 3) such services will be affordable to Singaporeans.
To achieve the above objectives, the government will be increasing hospital beds and manpower. These are: a) addition of 3,700 hospital beds by 2020; b) addition of 20,000 healthcare workers (+50 per cent) by 2020 and; c) lease capacity from private healthcare operators, namely Parkway East Hospital and Raffles Hospital, to treat subsidised patients, to ease the tight capacity in the short term.
Raising healthcare workers remuneration by 20 per cent. A new salary framework will be introduced to retain manpower in the public sector. On average, healthcare workers' total compensation will increase by about 20 per cent by 2014, with the first adjustments by April 2012. The measures to lease beds/capacity from private hospital operators will be positive in terms of operational utilisation, and could create some initial euphoria in share prices of private healthcare operators.
However, the financial metrics of how this will be done are still being ironed out. For example, patient charges, level of subsidies to be provided by the government, and the level of take-up rates (if based on patients' preference), etc.
Furthermore, we believe there is a limit to the number of beds each operator is able to lease to the public sector given that this could compromise its service level if the public partnership saps too much resources.
Fight for manpower issues a longer term challenge: With the increase in public sector remuneration, the bar by private operators to attract healthcare workers is likely to be raised. This comes at a time when capacity is increasing in the private sector. These are Parkway's Mt Elizabeth Novena Hospital, Singapore Health Partners' Connexion One (at Farrer Park), Adam Road Hospital by Fortis Healthcare, and Raffles Medical Specialist Medical Centre at Bideford Road and 30 per cent increase in GFA at its hospital.
Essentially, both public and private healthcare sector will need additional manpower resources. Staff cost accounts for about 49 per cent of revenue at Raffles Medical.
Maintain hold on Raffles Medical. Despite some near-term boost from the public partnership to lease beds, the details are yet to be finalised and the financial impact is uncertain. Over the medium term, the challenge lies in managing costs, namely manpower.
As Raffles Medical is trading at about 22.2 times FY12F price-to- earnings (P/E), above its mean of 21 times and 60 per cent premium to the overall market, we believe the valuations have already factored in the positive outlook. Our target price stays at $2.48, based on 24 times FY12F P/E, a +0.5 standard deviation above mean.
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