Photographer: Roslan Rahman/AFP via Getty Images

Rally in Singapore Health-Care Stocks May Not Be Over

  • Small-cap healthcare stocks surge amid industry consolidation
  • Consolidation likely to persist for at least 6-12 months: UOB

Health-care stocks in Singapore have rewarded investors with an average 50 percent gain in the past year, a rally that may continue as companies acquire local clinics to expand in the region’s medical-care market.

Singapore Medical Group Ltd. has more than doubled since August when it announced the purchase of a radiology center, while Singapore O&G Ltd., which runs gynecology centers, has surged 73 percent in the past 12 months. That’s helped an index of nine medical-services providers worth less than S$1 billion climb three times as much the benchmark Straits Times Index.

As many as 19 transactions involving acquisitions of clinics by publicly-traded companies have been completed in the city state over the last 12 months, data compiled by Bloomberg show. That’s almost twice as many as in 2015. The deal count may rise as more physicians sell their practices to larger providers of medical care, according to DBS Group Research.

“There’s still room for consolidation,” said Rachel Tan, an analyst at DBS Group Research in Singapore. “With corporatization, doctors could look to leverage the size and growth of a bigger medical practice and potentially prolong their practice as they approach retirement.”

Buying private clinics is the fastest way for companies to capitalize on populations that are becoming richer and seeking better care. While Singapore expects tourist arrivals to decline this year, the demand for high-end services from foreign patients is resilient, analysts say.

“Most middle-to-upper class Indonesians go to Singapore for treatment,” said Alan Richardson, a fund manager at Samsung Asset Management, who holds shares in Singapore Medical Group and Singapore O&G. “So, the market is not just Singapore, but a 600-million population catchment area that is Asean.”

Expensive Valuations

The optimism surrounding the industry has made the stocks expensive. While the market is giving high valuations to health-care companies in the region, smaller players who are consolidating can get re-rated even more easily, said Jarick Seet, head of small and mid-cap research at RHB Research Institute Singapore Pte Ltd.

Singapore Medical Group and Singapore O&G trade at price-to-earnings multiples that are more than double that of the local benchmark index.

“It’s an exciting story but sometimes integration is not easy,” said Andrew Chow, head of research at United Overseas Bank Ltd.’s brokerage unit. “The game will continue for the next six to 12 months. We need to see organic growth as well as a smooth integration a full year later.”

Even so, for doctors like Cathryn Chan, an obstetrician and gynecologist at Astra Women’s Specialists that’s been bought by Singapore Medical, the attraction of joining a hospital system was straightforward.

“When there are more doctors, more people in different sub-specialties, patients are looked after well,” she said. “And when you decide to retire, there will be a second generation to take over.”

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