Despite continued macroeconomic uncertainties in 2013, quality healthcare companies such as Raffles Medical Group (RMG), IHH Healthcare Berhad and Riverstone managed to showcase their resilience and defensive qualities with their robust financial performance. Nevertheless, not all healthcare companies enjoyed similar success stories in 2013, as Biosensors International Group (BIG) disappointed with a sharp 1HFY14 earnings dip. Looking ahead, positive fundamentals which are structural and entrenched in nature will continue to drive growth in 2014. However, key risks would stem from intensifying competition and continued depreciation of emerging market currencies (especially the IDR). We are also cautious on medical device and pharmaceutical companies with significant exposure to the Chinese market due to ongoing regulatory price controls. Maintain OVERWEIGHT on the healthcare sector, with a preference towards healthcare service providers. Our top sector pick is RMG [BUY; FV: S$3.61]. We also have a SELL rating on BIG with a fair value estimate of S$0.80.
Quality healthcare companies continued to deliver growth
Despite continued macroeconomic uncertainties in 2013, quality healthcare companies such as Raffles Medical Group (RMG) and IHH Healthcare Berhad (IHH) managed to showcase their resilience and defensive qualities. Revenue for RMG and IHH rose 10.7% and 17.8% (excluding non-recurring recognition of sale of medical suites), while core earnings were up 14.0% and 45.2%, respectively, for 9MCY13. Both healthcare service providers saw an increase in patient loads and higher revenue intensities, despite the weakening currencies of regional emerging countries such as the IDR against the SGD. Another notable strong performer was Riverstone Holdings, which registered a stellar 34.3% PATMI growth for 9MCY13, underpinned by rising demand for its high-quality healthcare gloves. Nevertheless, not all healthcare companies enjoyed similar success stories in 2013, as Biosensors International Group (BIG) disappointed with a sharp 59.0% plunge in its core PATMI to US$23.6m on the back of a 3.8% fall in its revenue to US$159.7m for its 1HFY14 results. This was attributed to ASP pressures and lower licensing and royalties revenue.
Outlook still positive, but prefer healthcare service providers
Looking ahead, dynamics in the healthcare sector continue to be driven by positive fundamentals which are structural and entrenched in nature. Issues such as an aging population, increasing disease burden, rising affluence in the region and strengthening medical tourism trend imply that the underlying growth drivers would likely persist in the long run. However, we are more cautious on medical device and pharmaceutical companies with significant exposure to the Chinese market. This is because ongoing regulatory price controls may continue to exert pressure on margins and cast an overhang on the share prices of these companies in the near future, in our view.
Maintain OVERWEIGHT
We maintain our OVERWEIGHT rating on the healthcare sector. Key risks would stem from intensifying competitive pressures and continued depreciation of emerging market currencies (especially the IDR). Under our sector coverage, we have aSELL rating on BIG with a fair value estimate of S$0.80. We believe its near-term financial performance would remain lacklustre given industry headwinds and margin pressure. Our top pick in the sector is RMG, where we have a BUY rating and S$3.61 fair value estimate. We like RMG for its healthy balance sheet, capable management team, robust growth prospects and strong brand equity.
Despite continued macroeconomic uncertainties in 2013, quality healthcare companies such as Raffles Medical Group (RMG) and IHH Healthcare Berhad (IHH) managed to showcase their resilience and defensive qualities. Revenue for RMG and IHH rose 10.7% and 17.8% (excluding non-recurring recognition of sale of medical suites), while core earnings were up 14.0% and 45.2%, respectively, for 9MCY13. Both healthcare service providers saw an increase in patient loads and higher revenue intensities, despite the weakening currencies of regional emerging countries such as the IDR against the SGD. Another notable strong performer was Riverstone Holdings, which registered a stellar 34.3% PATMI growth for 9MCY13, underpinned by rising demand for its high-quality healthcare gloves. Nevertheless, not all healthcare companies enjoyed similar success stories in 2013, as Biosensors International Group (BIG) disappointed with a sharp 59.0% plunge in its core PATMI to US$23.6m on the back of a 3.8% fall in its revenue to US$159.7m for its 1HFY14 results. This was attributed to ASP pressures and lower licensing and royalties revenue.
Outlook still positive, but prefer healthcare service providers
Looking ahead, dynamics in the healthcare sector continue to be driven by positive fundamentals which are structural and entrenched in nature. Issues such as an aging population, increasing disease burden, rising affluence in the region and strengthening medical tourism trend imply that the underlying growth drivers would likely persist in the long run. However, we are more cautious on medical device and pharmaceutical companies with significant exposure to the Chinese market. This is because ongoing regulatory price controls may continue to exert pressure on margins and cast an overhang on the share prices of these companies in the near future, in our view.
Maintain OVERWEIGHT
We maintain our OVERWEIGHT rating on the healthcare sector. Key risks would stem from intensifying competitive pressures and continued depreciation of emerging market currencies (especially the IDR). Under our sector coverage, we have aSELL rating on BIG with a fair value estimate of S$0.80. We believe its near-term financial performance would remain lacklustre given industry headwinds and margin pressure. Our top pick in the sector is RMG, where we have a BUY rating and S$3.61 fair value estimate. We like RMG for its healthy balance sheet, capable management team, robust growth prospects and strong brand equity.
No comments:
Post a Comment