HealthCare – OCBC


Growth trend continues

Possible sector re-rating from high profile IPOs

Biosensors Int’l remains our top pick

4QCY11 results review

Under our Healthcare sector coverage for the recently concluded 4QCY11 results period, Raffles Medical Group (RMG) reported results which were in line with our expectations, while Biosensors International Group’s (BIG) core earnings came in slightly below our estimates. Both companies continued to showcase healthy growth trends, although BIG’s financials were boosted by the consolidation of JW Medical Systems. For RMG, we also like its high earnings quality and opine that it is sustainable, backed by its strong operating cashflow generating ability and robust industry fundamentals.

New listings could rekindle hype in sector

Media reports have recently highlighted Fortis Healthcare’s plans to list a US$400m business trust on SGX in 2Q12, following its decision to postpone the IPO of Religare Healthcare Trust last year due to unfavourable market conditions1. Another anticipated IPO could come from Khazanah Nasional’s listing of Integrated Healthcare Holdings (IHH) in 2H12, with a dual listing in Singapore and Malaysia a possibility. This could potentially raise proceeds of US$3b2. As a recap, Parkway Holdings (now part of IHH) was privatised in 2010 at ~37x trailing PER (based on EPS before exceptional items). Should this IPO materialise at similar, if not higher valuations, it might provide an impetus for a re-rating of the sector.

Maintain OVERWEIGHT on Healthcare sector

In our opinion, RMG [BUY; FV: S$2.66] would likely benefit the most in the event of a sector re-rating under the aforementioned circumstances, given its leading position as a quality private healthcare service provider. We reiterate our OVERWEIGHT rating on the Healthcare sector, underpinned by well-entrenched fundamentals such as growing affluence in the region and an aging population. Meanwhile, BIG [BUY; FV: S$1.95] remains our top pick in the sector. We see its recent share price weakness as a good buying opportunity.

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