Private healthcare providers in Asean well-positioned to tap bond market

KUCHING: RAM Ratings has published a commentary on private healthcare in the Asean-4 countries, with a special focus on the six major players in the region.

“Our study has revealed that major players in this region exhibit sturdy business profiles. Players such as IHH Healthcare Berhad are large-scale and diversified while others are able to carve their own niches,” says Kevin Lim, RAM’s head of Consumer and Industrial Ratings.

These companies have demonstrated strong top-line growth for the last five years, with an average CAGR of over 20 per cent, buoyed by robust demand and their expanded operations as well as footprints.

Given their market dominance and favourable industry dynamics, these firms have chalked up strong double-digit operating profit before depreciation, interest and tax (OPBDIT) margins of at least 20 per cent; smaller players such as Bumrungrad Hospital Public Company Ltd and Raffles Medical Group Limited are also able to record healthy margins given their niche positions.

“Nonetheless, the trends in gearing levels and cashflow-protection metrics reveal a tale of two extremes. Much depend on their appetite for business expansion and the subsequent mode of funding,” adds Lim.

The players’ adjusted gearing ratios vary from 0.04 times to a high of 1.43 times while their funds from operations debt cover extend from 0.18 to over three times.

In 2012, IHH raised RM6.3 billion to partly fund its acquisition of a 60% stake in Acibadem Saglik Yatirimlari Holding AS. On the other hand, all the debts of the major players take the form of bank borrowings.

“Given their generally healthy profiles, we expect these major players to also be able to competitively access the bond market,” noted RAM Ratings.

Globally, the healthcare sector – which accounts for approximately 10 per cent of the world’s GDP – has been a key global economic growth driver. Nonetheless, global healthcare spending patterns have been uneven.

Despite rising demand from a burgeoning middle class in the last decade, overall healthcare expenditure in Asean has lagged that of developed nations.

Countries such as Japan and the UK spend twice as much per capita on healthcare compared to Malaysia, Singapore, Thailand and Indonesia.

Over the long run, an expanding middle class and income growth will set the stage for expansion in the Asean-4 countries. Rising healthcare awareness is also expected to be one of the key drivers of private healthcare expenditure.

With the exception of Singapore, we expect the Asean-4 countries to chart rising income levels and increased spending on healthcare requirements.

“We also envisage greater penetration of medical insurance coverage to help lift healthcare spending in this region. This is especially so for countries without mandatory medical savings schemes or effective universal healthcare coverage. Save for Singapore, medical insurance is still at a nascent stage and penetration levels remain very low in the Asean-4 economies,” said RAM Ratings.

Apart from serving the domestic market, private healthcare providers may also attract patients from abroad. Medical tourism is one of the fastest growing healthcare sub-segments, particularly in Asia.

The expansion has been largely fuelled by relatively affordable costs compared to treatment options in Western countries, as well as easy access to air travel.

 

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