11 January 2018
Demand-Supply Dynamics of Asia’s Healthcare Sector
  • Asia’s accelerated ageing rates and the rise of lifestyle diseases will likely boost the region’s healthcare spending outlook in coming decades, while in supply terms, the region’s medical facilities, equipment and manpower will continue to trail the per capita averages of the 34 OECD member countries. SGX-listed healthcare plays that derive significant revenues from markets beyond Singapore have exposure to these robust demand-supply dynamics.
  • Singapore’s listed healthcare sector, as tracked by the benchmark SGX All-Healthcare Index, consists of 30 companies and related trusts with a combined market capitalisation of more than S$34 billion. Seven of the 10 largest constituents of the Index report more than a third of group revenues to Asia Pacific ex-Singapore, namely Southeast Asia, North Asia and South Asia.
  • Healthcare stocks posted a mixed performance in 2017, as funds rotated out of defensives into cyclical plays. However, the tide has turned over the last few weeks, making Healthcare the best-performing sector on a market capitalisation-weighted basis in the month of December, and positive momentum continuing into the new year.

Opportunities and challenges abound within the demand and supply dynamics of Asia’s healthcare services industry. In terms of demand drivers, Asia’s growing population is ageing. Rising affluence and a surge in lifestyle diseases are additional key structural drivers. On the supply side, the number of doctors, nurses, hospitals and medical equipment still trail the per capita averages of the 34 OECD member countries. With many Asian emerging economies grappling with limited fiscal funding, there is an increasing role for corporations to engage in these opportunities and challenges.

 

Investors can participate in the structural Asian healthcare theme through SGX-listed healthcare stocks, which are rapidly expanding into regional and global markets to meet growing patient needs.

 

Accelerated Ageing Rates

 

Asia’s demographics are favourable for the region’s healthcare spending outlook. According to the International Monetary Fund (IMF), East Asia – which includes China, Hong Kong, Japan, North and South Korea, Mongolia, Macao and Taiwan – is ageing faster than anywhere else in the world, with its old-age dependency ratio roughly tripling by 2050.

 

Japan is the world’s most-aged country, with an old-age dependency ratio of 43.3% at the end of 2015, with this figure forecast to rise to 70.9% by 2050, the IMF wrote in its Asia-Pacific economic outlook report published last Spring. For Hong Kong, the end-2015 figure was 20.6%, and is projected to rise to 64.6% by 2050, while the equivalent figures for China are 13.1% and 46.7% respectively, the IMF noted. As for South Korea, the country will become a “super-aged” society by 2030, with 24.5% of the population over the age of 65, according to projections by the Bank of Korea.

 

East Asia’s Old-Age Dependency Ratios Set to Surge in Next Three Decades

Rise of Lifestyle Diseases

 

In its 2018 Global Health Care Outlook report, Deloitte noted that rapid urbanisation, sedentary lifestyles, changing diets, and rising obesity levels are fuelling a surge in lifestyle diseases – most notably, cancer, heart disease, and diabetes.

 

China and India have the largest number of diabetes sufferers in the world, at around 114 million and 69 million respectively, while globally, the number is expected to rise from the current 415 million to 642 million by 2040, Deloitte noted. According to OECD, cancer is the second leading cause of death after cardiovascular disease in the Asia Pacific region.

 

Increasing Healthcare Expenditure

 

In line with these factors, global healthcare spending is projected to increase at an annual rate of 4.1% between 2017 and 2021, up from just 1.3% between 2012 and 2016, the Deloitte report noted. In Asia, the share of government spending in healthcare is estimated to be on average one-third less than that of the OECD average, other studies showed.

 

As for Singapore, government expenditure on healthcare is expected to accelerate over the next three to five years – rising by at least S$3 billion by 2020 from current levels, Finance Minister Heng Swee Keat said last month.

 

Global Healthcare Spending Forecast to Rise

The rapid emergence of the middle class in Asia could also turn the region into a consumption powerhouse, and have far-reaching implications on healthcare demand. According to OECD estimates, two-thirds of the global middle class – defined as households with daily expenditures of US$10-US$100 per person in 2005 purchasing power parity (PPP) terms – will be residents of the Asia-Pacific region, with China home to the largest share of this demographic.

 

Regional Supply Shortfall

 

In terms of medical technology, equipment and manpower, Asia suffers a shortfall compared with the developed markets. According to OECD data, Asia has 1.2 doctors per 1,000 people, compared to 3.2 for the OECD average, and 2.8 nurses per 1,000 people compared to 8.7 for the OECD average. The number of hospital beds per person for Asia is also almost a third less than the OECD average. Asia has less tomography scanners, MRI units, mammography units and radiation therapy units versus the OECD average.

 

The region’s demand drivers, coupled with the current shortfall in comparative services, supplies and technology, offer opportunities for increased participation by Singapore-listed providers and suppliers in the region’s healthcare sector.

 

Healthcare Sector Benchmark

 

The SGX All Healthcare Index is a free-float, market capitalisation-weighted index that measures the performance of Singapore’s listed healthcare sector. Currently, the five largest components by index weight are Top Glove (15.4%), Parkway Life REIT (10.1%), Haw Par Corp (9.9%), First REIT (9.7%), IHH Healthcare (9.5%). These five stocks make up more than half the index.

 

For calendar year 2017, the SGX All Healthcare Index registered a price gain of 9.5%, compared with the MSCI AC Asia Health Care Index’s 16% gain in Singapore dollar terms. Between January and September last year, institutional investors were net-sellers of Singapore healthcare stocks, as funds rotated out of defensive stocks into cyclical plays. However, the tide turned in the last quarter of 2017, as selected healthcare plays with exposure to recovering consumer sentiment rebounded, making Healthcare the best-performing sector on a market capitalisation-weighted basis for the month of December. For a report on the Healthcare sector’s momentum in the first week of January, published earlier this week, click here.

 

SGX All-Healthcare Index vs MSCI AC Asia Health Care Index in 2017

 

 

The 10 largest constituents of the SGX All-Healthcare Index comprise three healthcare providers, two medical equipment providers, two pharmaceutical companies, and three healthcare REITs, and have a combined market capitalisation of over S$31 billion. They are: IHH Healthcare, Raffles Medical Group and Talkmed Group, Top Glove and Riverstone Holdings, Haw Par and Tianjin Zhongxin Pharmaceutical, Parkway Life REIT, First REIT and RHT Health Trust.

 

Expanding Geographical Reach 

 

Seven of the 10 largest constituents of the SGX All-Healthcare Index report more than a third of their group revenues to Asia Pacific, ex-Singapore. They have operations and assets that span the following geographical markets: Singapore, Malaysia, Vietnam, Thailand, Cambodia, Brunei, Indonesia, Hong Kong, China, Japan, South Korea, Bangladesh, India, Turkey, Bulgaria, and Macedonia.

 

Healthcare Service Providers – Revenue Breakdown by Geography (%)

 

Notes:

·        Although Raffles Medical Group derives 100% of group revenue from Singapore, it has recently set up operations in Hong Kong and Shanghai, and acquired clinics in Vietnam and Cambodia. It now has a presence in 13 cities in Asia.

·        IHH Healthcare’s APAC ex-Singapore exposure comprises medical centre and hospital operations in China, Hong Kong, India, Brunei and Malaysia, while its EMEA exposure comprises Iraq, United Arab Emirates, Turkey, Bulgaria and Macedonia.

·        Talkmed’s APAC ex-Singapore exposure comprises medical oncology and stem cell transplant services in Hong Kong, Vietnam and Indonesia.

·        Parkway Life REIT’s APAC ex-Singapore exposure primarily comprises hospital, medical centre and nursing home operations in 14 prefectures in Japan and Malaysia.

·        First REIT’s APAC ex-Singapore exposure comprises hospital operations in Indonesia and a nursing facility in South Korea.


Source: Company data and annual reports

 

Healthcare Equipment and Product Suppliers – Revenue Breakdown by Geography (%)

Source: Company data and annual reports

 

Note: Healthcare equipment suppliers export their products globally, while their manufacturing and/or sales offices are located throughout Asia Pacific, USA and/or Europe.

 

Did You Know?

 

SGX’s healthcare sector comprises 30 listed healthcare companies and healthcare-related trusts with a combined market capitalisation of more than S$34 billion. Healthcare Providers form the largest sub-industry within the sector with 16 companies. The remaining 14 healthcare companies fall under various sub-industries, including Healthcare Equipment, Pharmaceuticals, and Real Estate asset owners, according to the Global Industry Classification Standard (GICS).

 

The 30 constituents of the SGX All-Healthcare Index are detailed below, sorted by market capitalisation. Click on each stock name to access its profile in SGX StockFacts.

 

 

Name

SGX Code

Weight (%)

Market Cap (S$M)

Gics Sub-Industry

 

Top Glove Corp

BVA

15.3

3,765

Healthcare Equipment & Services

 

Parkway Life REIT

C2PU

10.2

1,791

Real Estate

 

Haw Par Corp

H02

10.0

2,663

Pharmaceutical & Lifescience

 

First REIT

AW9U

9.7

1,100

Real Estate

 

IHH Healthcare

Q0F

9.5

16,067

Healthcare Equipment & Services

 

Raffles Medical Group

BSL

9.1

1,930

Healthcare Equipment & Services

 

RHT Health Trust

RF1U

7.5

666

Healthcare Equipment & Services

 

Riverstone Hldgs

AP4

4.4

786

Healthcare Equipment & Services

 

Tianjin ZhongXin Pharmaceutical

T14

4.2

2,029

Pharmaceutical & Lifescience

 

Health Management International

588

3.8

566

Healthcare Equipment & Services

 

Q&M Dental Group

QC7

3.6

525

Healthcare Equipment & Services

 

Singapore Medical Group

5OT

2.2

258

Healthcare Equipment & Services

 

TalkMed Group

5G3

2.1

900

Healthcare Equipment & Services

 

Cordlife Group

P8A

1.2

202

Healthcare Equipment & Services

 

iX Biopharma

42C

1.1

118

Pharmaceutical & Lifescience

 

ISEC Healthcare

40T

1.0

163

Healthcare Equipment & Services

 

Singapore O&G

1D8

0.9

207

Healthcare Equipment & Services

 

Healthway Medical

5NG

0.7

263

Healthcare Equipment & Services

 

OUE Lippo Healthcare

5WA

0.6

201

Healthcare Equipment & Services

 

HC Surgical Specialists

1B1

0.6

107

Healthcare Equipment & Services

 

Techcomp Holdings

T43

0.5

77

Healthcare Equipment & Services

 

Medtecs International Corp

546

0.4

26

Healthcare Equipment & Services

 

Aoxin Q&M Dental Group

1D4

0.4

76

Healthcare Equipment & Services

 

QT Vascular

5I0

0.3

28

Healthcare Equipment & Services

 

AsiaMedic

505

0.3

25

Healthcare Equipment & Services

 

Camsing Healthcare

BAC

0.1

29

Retail

 

Star Pharmaceutical

AYL

0.1

14

Pharmaceutical & Lifescience

 

UG Healthcare Corp

41A

0.1

38

Healthcare Equipment & Services

 

Suntar Eco-City

BKZ

0.05

13

Pharmaceutical & Lifescience

 

Pharmesis International

BFK

0.03

5

Pharmaceutical & Lifescience

Source: SGX StockFacts, Bloomberg (Data as of 10 January 2018)


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