ASEAN Hospitals - Riding with the Four Horsemen

Scour for an evergreen and recession-resilient industry with earnings growth and ASEAN hospitals probably make the list. What we want to find out is which group can withstand the onslaught of relentless expansion on their businesses.

In 2013 alone, more aggressive expansion plans have been unveiled by ASEAN’s hospital operators. The macro and regulatory environment in their countries favours such expansion for now. We like the bigger healthcare names with strong earnings-growth prospects. Maintain Overweight with catalysts from higher medical charges, fee hikes and higher medical-tourism receipts. BGH and IHH are our top picks.

"If you got the money, honey, we got your disease."
– Guns n Roses, Welcome to the jungle

Expensive valuations vs. “expansive” value
ASEAN hospitals are happily dancing to the tune of favourable industry dynamics. It is for this reason that the sector has held up well with premium valuations attached. But are investors prepared to chase them up beyond their seemingly already-rich valuations? We examine individual hospitals’ constraints and broader industry hiccups and blind spots.

The “Four Horsemen”
We identify four areas that are potentially trickier to deal with: 

1) balance-sheet risks are more manageable than a failure in execution; 

2) expansion costs are beyond just P&L; 

3) are we playing supply-led demand or demand-derived supply?; and 

4) the 2015 AEC’s impact on the ASEAN healthcare scene.

BGH and IHH are our top picks
Despite concerns about the burden from its new hospitals, we believe BGH has the ability to shoulder the start-up costs. We like IHH for its robust regional offerings. Smaller-cap gems include RFMD for its good cash-churning business, stout balance sheet and consistent dividend payments to shareholders. (Read Report)

Source : CIMB Research

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