• The global Healthcare sector has expanded at a rapid pace over the recent years, driven by significant medical advances, accelerated drug approval processes for high unmet needs and overall increased access to healthcare. The high quality of healthcare innovation coming out of Asia has already attracted a global audience of blue-chip investors and strategics to the region, as noted by Mr. Sandeep Wasan, Managing Director and Head of ASEAN Healthcare Group at Citi, during the SGX Healthcare Day 2023 held in February.
   
• The iEdge SG All Healthcare Index, which tracks the performance of the listed healthcare segment in Singapore, generated a 1.5% decline (in total return terms) in the first 2 months of 2023, with the top 10 constituents by weightage, averaging 0.8% gain in total returns.
   
• 5 out of the 10 stocks outperformed the broader index during this period, averaging 9.4% total returns. Both healthcare S-REITs – ParkwayLife REIT and First REIT - are among the largest constituents in the iEdge SG All Healthcare Index, and have outperformed the broader index in the YTD.
   
• As noted in the recent financial releases, many of the Healthcare-related stocks are optimistic of their operational growth in 2023, with the return of international travels and believe that they are well-positioned to transition to the post-pandemic norm.
   

Even though global Healthcare stocks underperformed last year, the Healthcare sector has grown significantly over the years and has remained resilient over the long term, as noted by Mr. Sandeep Wasan, Managing Director and Head of ASEAN Healthcare Group at Citi, during SGX Healthcare Day 2023 held in February. According to Mr. Wasan, the Healthcare sector in Asia remains particularly attractive and full of opportunity given the favorable demographics (e.g., urbanisation, increasing life expectancy) and growing focus by local governments to increase insurance coverage and access to healthcare. According to Bloomberg data, the global Heathcare sector has grown by close to 44% (by market capitalisation) since 2018.

Looking back at the Singapore market, the iEdge SG All Healthcare Index, which tracks the performance of the listed Healthcare segment in Singapore, generated a 1.5% decline (in total return terms) in the first 2 months of 2023, with the top 10 constituents by weightage, averaging 0.8% gains in total returns. 5 out of the 10 stocks outperformed the broader index during this period, with Tianjin Pharma Da Ren Tang Group and Parkway Life REIT leading the pack at 18.4% and 16.4% total returns respectively. Tianjin Pharma Da Ren Tang Group also saw close to 400% increase in daily average value traded this year, as compared to the whole of 2022. The Group has been granted an extension of time to release its full year results.

The 10 stocks of the iEdge SG All Healthcare Index with the largest weights are tabled below and sorted by year-to-date performance.

Source: SGX, Bloomberg, Refinitiv (Data as of 28 Feb 2023)
 

As noted in the recent financial releases, many of the Healthcare-related stocks are optimistic of their operational growth in 2023, with the return of international travels and believe that they are well-positioned to transition to the post-pandemic norm.  

• Haw Par Corp, the maker of Tiger balm, reported a 29% increase in FY22 revenue to S$182.1 million, of which S$164.1 million was contributed by its Healthcare business segment. It noted that this was driven by global reopening and improvements in consumer spending on products in the Healthcare segment. On a segmental basis, the Healthcare segment recorded 31.8% increase in revenue, mainly driven by sales recovery in key Asian markets and lower marketing expenses incurred. Revenue from other segments which comprise of Leisure and Property divisions increased 7.7% due to the return of international travellers.
   
• Q & M Dental Group, reported a 12% decline in full year total FY22 revenue as Covid-19 testing revenue significantly decreased. However, core Healthcare revenue grew 2% year-on-year. This brings its growth to a CAGR of 9% from S$120.8 million to S$172.1 million for the last 5 financial years (FY2018 to FY2022). The Group has been actively transitioning to a “living with Covid-19” stance by focusing on long term growth which involves continued training and upgrading of its dentists and professional assistants and use of technologies.
   
• Raffles Medical Group reported a 5.9% increase in FY22 revenue to S$766.5 million, leading to a Profit after Tax of S$143.7 million, a 71.7% increase year-on-year. Notably, the Group saw a return of foreign patients seeking medical treatment in Singapore with the reopening of borders and easing of Covid-19 related protocols in 2H22. Looking ahead, it expects the Group to remain profitable in FY23, as foreign patients return for medical treatments with the resumption of global travel.

There are also 2 SGX-listed REITs with assets in the Healthcare segment. Both S-REITs outperformed the broader iEdge SG All Healthcare Index in the 2M2023 period. Both S-REITs have also increased its geographical exposure in Japan over the year.

• ParkwayLife REIT reported that gross revenue for 2H22 and FY22 increased 14.2% year-on-year to S$69.8 million and 7.7% year-on-year to S$130.0 million respectively. This was primarily due to higher rent from the properties acquired in 2021 & 2022, adjusted revenue for Parkway East Hospital and higher rent from the Singapore hospitals under the new master lease agreements  During the year, the REIT strengthened its presence in the Japan’s aged care market with the completion of 2 separate acquisitions of nursing homes. Its growing Japan portfolio now spans across 17 Japan prefectures with a diversified tenant base across 30 nursing home operators.
   
• First REIT’s net property income grew 8.3% year-on-year in FY22, largely due to contributions from the 14 newly acquired Japan properties, as well as stable rental income from its Indonesia properties following the restructuring of master lease agreements. The REIT has an aim to increase exposure to developed markets to 50% of portfolio AUM by 2027. With the acquisition of the 14 Japan nursing homes, its exposure to developed markets is now at 25% of total AUM. This is part of First REIT’s continued effort to harness its 2.0 Growth Strategy to enhance the resiliency of distributions to unitholders.

Some key takeaways from the SGX Healthcare Day 2023:

• According to Professor Andrea B. Maier, Co-Director at Centre for Healthy Longevity at NUS, longevity dividend refers to the health and economic gains by slowing the biological processes of aging, providing more opportunities for healthcare providers and innovations.
   
• Some secular trends in the global healthcare market identified by Citi include: Big data has the potential to significantly disrupt the industry; Consumer behavior, consumer tech and future of healthcare are converging; Blockbuster patent cliffs are forcing big pharmaceutical companies to look to Asia for innovation.
   
• According to the panel on “Building Global Biomedical Champions”: Life sciences is a long game which requires patience and capital. Furthermore, in order to create an innovative ecosystem, it is important to start developing and discovering talents. The industry has been patiently investing for a long time, on academics, clinicians who are interested to collaborate from academic medicine and facilities where the experiment can be done.
   
• According to the panel on “Opportunities & Funding Landscape in the Healthcare Industry”: Healthcare has been a very attractive sector due to scarcity of high-quality companies with intense competition amongst investors, driving robust valuations. High quality and scalable businesses will find it easier to command good valuations and raise capital.

Click here view the highlights video at the SGX Healthcare Day 2023.