Excerpts from Phillip Securities report
Analyst: Tay Wee Kuang
COVID-19 stressed the healthcare industry like never before. A lack of understanding of the new virus created aversion to hospital and clinic visits for fear of contracting the virus in medical facilities.
Healthcare providers were affected as many elective and non-essential treatments were deferred.
Travel restrictions compounded the problem, as medical tourism ground to a halt in Singapore.
Medical supplies distributors, too, were affected by lower demand for medical services and hiccups in their supply chains, which led to higher costs.
The initial rush for essential medical supplies such as surgical masks and hand sanitisers also resulted in preemptive stocking up at higher costs due to supply shortages.
The pandemic, however, did throw up some winners, as with most crises.
The essential nature of medical PPE such as gloves and overalls led to a meteoric spike in demand.
This translated to rising average selling prices and order backlogs for manufacturers of medical PPE and COVID-19 test kits.
As COVID-19 came under control in Singapore, patients have started to trickle back to hospitals and clinics for elective, chronic and other non-essential treatments.
Successful development of COVID-19 vaccines is expected to improve the operating environment for the industry in 2021:
|1. Pent-up demand for medical services. Apart from patients returning for deferred treatments, there has been an uptick in aesthetic treatments as well.
Patients who may have developed chronic conditions over the past year may also stream into clinics and hospitals as risk aversion to medical facilities subsides.
2. Telemedicine gains traction. Digitalisation efforts by healthcare providers may begin to pay off.
Telemedicine can offer greater efficiencies through queue management, online consultations etc.
These complement existing healthcare services.
3. Possible recovery of medical tourism. A potential lifting of travel restrictions may bring back foreign patients, especially with the government’s plans to vaccinate the local population by 3Q21.
4. Demand for medical PPE and test kits to normalise. FY20 was a bumper year for medical PPE and test-kit manufacturers.
While 2021 could be a more normal year, order backlogs should still bolster FY21 earnings.
Business plans that were halted during the pandemic will likely resume, which can provide additional tailwinds to the sector.
Our top picks are as follow:
iX Biopharma (IXBIO SP, BUY, TP: S$0.455): potential out-licensing deal for Phase 3 of Wafermine™ development and scheduled capacity increase as part of commercialisation efforts may see iX Biopharma achieve breakeven in FY21.
UG Healthcare (UGHC SP, BUY, TP: S$1.35): we value UGHC on more normalised earnings in FY22e.
We already incorporate a 24% decline in ASPs and 25% point drop in GP margins.
Volume growth is expected to be its major earnings driver that year.