I have been crawling through medical companies, especially those offering direct services to patients. But have not go into those upstream, the manufacturers of medical equipments, products.
One thing that struck me is the high lofty valuation of above 30 PE is more of norm than exception. It is a sector that seems that it can do no wrong, however, looking at the companies, I would think that this is a myth. Of course there are well-managed companies like Raffles Medical, and companies with visible growth potential etc. There are also companies who are struggling
I am at first attracted to ISec, but when it bought Singapore clinics, I stopped looking. It reminded me of healthway.
Talkmed is a company that is a super multi-baggers from its IPO, even after recent correction, it is still a 5 baggers. I thought it would be another company with insane valuation. But nope, it is at PE 18, and surprise surprise, have a dividend yield of 4%, and is debt free.
It's has its link with Parkway, with refererral of patients through SCC and Parkway agreement, I am not sure when this arrangement will end, but the bulk of revenue is concentrated with its CEO, while this is itself a risk, I believe his "reputation" is more valuable than the referrals,however, to build up his "disciples", the referrals might be important.
Talkmed has stopped "growing" over the last few quarters, and there is associate "loss" with its Hong Kong investment. However, my thesis is this is an misunderstood counter. Here is why?
1) A new hospital cannot possibly break even within a year. It is wonderful results if it break even after 1 year, 2 years perhaps is a more reasonable timeline?
2) it's has run up so much, it is the most over-valued. If u look at the healthcare universal of listed companies in Singapore, it is the most attractive if you look at it in totality, balance sheet strength, yield and PE. Even "growth" is more visible if u ask me.
I have no idea how HK company will work out, reading through the doctors' CV, and it does seem impressive, typical your premium private care doctors. The concept of one-stop cancer care, and most importantly, comfort, it does seem to appeal to what the rich would want if they are diagnose with cancer. If u compare this with the doctors ISEC bring into their fold, even with profits guaranteed clause. Vietnam Venture has already yield results although it would be a long while before it could contribute meaningfully.
I would have invested if my cash level is high. But, I would keep my powder dry.
On a side-note, I also do not think think healthcare is a "ever-green" sector. Yes, Singapore is aging, there is demand for healthcare, but not all companies will benefit from this trend universally. I also find the healthcare insurance system in Singapore a timebomb.
Many are being persuade to buy the top IP plan, and the insurers are raising premiums because there is wastage.
Look, if u are ill, u go to A&E at a premium hospital, even if u are not that serious to need hospitalization, what would u do? Pay for the consultation and medicine in cash or ask to be hospitalized and then claim? Will the private hospital has the incentive to reject your request?
Is private care really worth 300- 1000% premium over govt. care? There is some muttering about regulation in private care, if it happens, I suspect there would be some pressure on "premiucare"