Epidemic 'won't infect health-care stocks' here

Mr Shane Oliver, investment strategy head and chief economist at AMP Capital, said there was a 90 per cent chance that the Ebola outbreak would be contained in Africa as CIMB analyst Gary Ng kept his "overweight" call on Singapore's health-care secto
Mr Shane Oliver, investment strategy head and chief economist at AMP Capital, said there was a 90 per cent chance that the Ebola outbreak would be contained in Africa as CIMB analyst Gary Ng kept his "overweight" call on Singapore's health-care sector, citing medical fee hikes and higher patient revenues.PHOTO: REUTERS

Analysts cite well-equipped private hospitals, low risk of Ebola in S'pore

Conventional wisdom suggests that health-care stocks tend to get battered by the outbreak of an epidemic as medical services face higher costs to battle it.

But private hospital operators in Singapore are well-equipped to handle an outbreak of a disease such as Ebola, CIMB Research said in a report yesterday.

Other analysts also note that the chances of the outbreak in Africa reaching Singapore are still quite remote.

More broadly, CIMB Research said in its report that it especially likes IHH Healthcare, given its "diverse health-care income sources". Mainboard-listed IHH owns the Gleneagles, Parkway East, Mount Elizabeth and Mount Elizabeth Novena hospitals.

It is one of the world's largest hospital operators, with health-care facilities in several parts of Asia and as far as Macedonia and the United Arab Emirates.

CIMB analyst Gary Ng said in the report that if an influenza outbreak hits Singapore, for instance, the Health Ministry would require contagious cases to be sent to a designated hospital such as Tan Tock Seng Hospital in Novena.

As a result, some people may choose to go to private hospitals, such as those owned by IHH or the mainboard-listed Raffles Medical Group.

More patients admitted at those private hospitals could mean higher earnings for them.

Mr Ng also said that both IHH and Raffles Medical have benefited from contracts awarded by the Ministry of Health to conduct screenings at airports and other points of entry here.

However, he noted that an outbreak could raise operating costs for hospitals, owing to the additional precautionary measures they would likely roll out.

"Back in 2003, IHH's previous incarnation, Parkway Holdings, experienced a dismal second quarter and third quarter when Sars broke out in Singapore," he noted, referring to the severe acute respiratory syndrome.

IHH, which is also listed in Malaysia, bought Parkway Holdings in 2010.

"However, the group did end the year with higher revenue and a marginally higher net profit, owing to returns of patient loads at the end of the year."

Mr Ng estimated that a 1 per cent drop in overall patient admissions could lower IHH's earnings by 2.3 per cent.

The impact of such a decline on IHH's profits could be cushioned by its operations in other countries such as Turkey and Malaysia, Mr Ng said.

Raffles Medical would likely be hit harder by that same 1 per cent drop, with its earnings falling 3.4 per cent, he estimated.

Mr Ng said that IHH has a "better ability" than its peers to adjust prices to deal with rising staff costs and other cost pressures, even if a pandemic occurs.

He kept his "overweight" call on Singapore's health-care sector, pointing to medical fee hikes, higher patient revenues and greater medical tourism revenues.

"Ebola poses a low public health risk to Singapore... Almost all of the Asian hospitals are adequately supplied with infection control that will prevent the spread of the disease," he said.

Other analysts also think Ebola may not spread beyond Africa.

Mr Shane Oliver, investment strategy head and chief economist at AMP Capital, said in a report last week that "the worst-case fears of pandemics usually don't come to pass. Hopefully the same will apply to the latest Ebola outbreak". He said there was a 90 per cent chance that the outbreak would stay within Africa.

"However, since the risk is not insignificant, it will be necessary for investors to keep a close eye on how the latest outbreak develops. The key for investors at this stage is to be alert, but not alarmed," Mr Oliver said.

IHH shares lost half a cent to close at $1.965 while those of Raffles Medical were down two cents to end at $4 yesterday.

melissat@sph.com.sg