Positive for private healthcare providers. Prime Minister Lee’s healthcare measures in his recent National day rally speech are supportive of our positive view on the private healthcare sector. While the primary aim is to tackle ongoing concerns of Singaporeans about the affordability of healthcare, the other underlying trend is that private healthcare sector will play an increasingly significant role, in our view. In particular, we see two key changes which will benefit providers.

Medisave

Key change: To extend Medisave usage for outpatient treatments. Impact: Medisave is a compulsory national saving scheme which puts aside 7-9.5% of Singaporeans’ income for medical requirements. For hospital services, this was previously restricted to inpatient costs and very limited outpatient treatments. This change would benefit private hospitals as Medisave claims can now support patients for outpatient treatments, which in itself is a growing trend.

Community Healthcare Assist Scheme (CHAS)

Key change: Removal of minimum age limit of 40 years old. Impact: CHAS is a scheme which subsidises lower-income Singaporeans seeking treatment at private clinics, which would otherwise be more expensive than crowded public clinics. We estimate this change would double eligible participants from 0.7 million currently to around 1.5 million. This will drive traffic towards private clinics.

Raffles Medical and IHH are the winners. The increased ability of patients to pay for healthcare services will benefit Raffles Medical and IHH, which are the largest private healthcare providers in Singapore. Other than hospitals, they are also expected to benefit from the CHAS reform stated above, with their extensive clinic networks in Singapore, which contributes around 35% and 10% of their revenue respectively. We are neutral on the Singapore healthcare sector, with positive industry dynamics weighed against possible short-term demand dampening from the currency uncertainty in the region. SGD strength is a negative, given that foreign patients makes up 30-50% of hospital load, most coming from the region.

Raffles Medical is our top BUY due to its long-term earnings resiliency, hospital expansion plans which will drive earnings growth and valuations which are lower than peers. We have a HOLD call on IHH as we are cognizant of the execution risk from a very ambitious international expansion plan and the currently steep valuations.

Source: Maybank Kim Eng Research - 29 Aug 2013