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5 November 2008
Singapore Healthcare Sector
Time for a checkup
James Tan
Research Analyst
(65) 6423 5139
james-s.tan@db.com
Underweight call on Singapore Healthcare
We analyze the impact of two mega trends in the healthcare sector – medical
tourism and means testing. In the short term, we find the outlook for medical
tourism challenging in the face of macro headwinds and increased competition in
the sector, leading to our Underweight call on the sector. Our top Sell call is on
Parkway (PWAY SP) and a Hold on Raffles Medical Group (RFMD SP).
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at http://gm.db.com or by calling 1-877-
208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
Industry Strategy
Top picks
Parkway Holdings (PARM.SI),SGD1.66 Sell
Raffles Medical Group (RAFG.SI),SGD0.66 Hold
Companies featured
Parkway Holdings (PARM.SI),SGD1.66 Sell
2007A 2008E 2009E
P/E (x) 11.1 21.1 24.3
EV/EBITDA (x) 17.6 14.6 16.0
Price/book (x) 5.9 1.5 1.5
Raffles Medical Group (RAFG.SI),SGD0.66 Hold
2007A 2008E 2009E
P/E (x) 18.4 11.5 12.8
EV/EBITDA (x) 18.9 6.3 6.6
Price/book (x) 3.9 1.6 1.5
Global Markets Research Company
Impact from introduction of means testing could disappoint
Singapore spent only 3.9% of its GDP on healthcare (vs 8.1%-15.4% for
developed countries) in 2007. But healthcare costs will rise as the population ages,
and we see the introduction of means testing as a preemptive measure to contain
healthcare costs. With a 50-70% premium for private healthcare, we believe that
means testing in Jan ‘09 should have minimal impact on patients migrating to
private healthcare in the near term.
Medical tourism will be a key long-term driver; but not immune short term
Over the years, Asia has become an attractive medical hub for tourists from
developed countries seeking affordable, quality healthcare. The Singapore
government targets to grow medical tourists from 0.4m in 2006 to 1m in 2012. To
cater to the anticipated demand, the government is building two new public
hospitals and adding two private hospitals, which will add 5% to the existing
capacity of 8,795 beds in the public hospitals and 18% to the existing capacity of
3,763 beds in the private hospitals.
Demand likely to fall, increased competition and rising cost to hit
Contrary to popular perception, private healthcare spending is not defensive
(private spending fell 9% in 1998 and 11% in 2001). Deteriorating GDP is likely to
affect healthcare expenditure and medical tourism. Coupled with the new supply
of private and public hospitals, this could intensify competition and drive up
operating costs in the sector given the lack of medical professionals in Singapore.
Longer-term opportunities but industry competition arises
A gradual removal of subsidies under means testing is likely over time, which will
narrow the gap between public and private healthcare costs. To accommodate the
public-to-private migration and foreign demand, we expect the government to
continue encouraging new entrants by selling more hospital sites. Increasing
public participation in the private sector (similar to other public goods such as
housing) could also be pursued. While there are opportunities for the existing
players, the competitive landscape could increase with new players entering the
healthcare industry.
Headwinds ahead for the sector
We initiate coverage on the healthcare sector with an Underweight rating as we
believe that sector valuations are rich relative to the broader market, which has derated
due to slower growth. We initiate a Sell on Parkway for its lackluster
earnings profile and high leverage. We initiate a Hold on Raffles Medical Group
given its ability to expand its hospital services on multiple fronts over the long
term given its underutilized balance sheet.
Table of Contents
Executive summary ........................................................................... 3
Outlook: Challenging for medical tourism in Asia .....................................................................3
Underweight on healthcare sector in Singapore.......................................................................3
Risks ........................................................................................................................................3
Peer valuation comparison........................................................................................................4
Underweight call on the sector .................................................................................................5
Risks for the sector ...................................................................................................................5
Changing regulatory environment in Singapore ............................ 6
Means testing could have minimal impact on private healthcare in the near term ...................6
Implementation of means testing .............................................................................................7
Short-term impact likely ................................................................... 9
Global economic slowdown could affect Singapore healthcare ...............................................9
Medical tourism a double edged sword .................................................................................10
Slowdown in tourism arrivals in Singapore .............................................................................11
Risks to long-term growth.............................................................. 12
Government initiatives to grow Singapore into a medical hub................................................12
Increasing healthcare supply to cater to demand ...................................................................13
Appendix A....................................................................................... 16
Medical tourism in Asia – Thailand, India, Malaysia and Singapore remain top destinations ..16
Quality of healthcare in Asia is rising ......................................................................................17
Singapore healthcare system in good health ..........................................................................18
Adequate healthcare financing schemes in place ...................................................................19
Government medical expenditure rising due to aging population...........................................20
List of private and public hospitals in Singapore.....................................................................22
Type of wards at public hospitals in Singapore.......................................................................23
Growth in the Biomedical Science sector in Singapore ..........................................................24
Types of healthcare systems and their funding ......................................................................25
Parkway Holdings............................................................................ 26
Raffles Medical Group..................................................................... 48
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